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The Nash bargaining solution in vertical relations with linear input prices

Hamid Aghadadashli, Markus Dertwinkel-Kalt () and Christian Wey ()

Economics Letters, 2016, vol. 145, issue C, 291-294

Abstract: We re-examine the Nash bargaining solution when an upstream and N downstream firms bargain over a linear input price with unobservable contracts. We show that the profit sharing rule is given by a simple and instructive formula which depends on the parties’ disagreement payoffs, the profit weights in the Nash-product and the elasticity of derived demand. A downstream firm’s profit share increases in the equilibrium derived demand elasticity which in turn depends on the final goods’ demand elasticity.

Keywords: Vertical relations; Nash bargaining; Demand elasticity (search for similar items in EconPapers)
JEL-codes: L12 L13 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.econlet.2016.07.008

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