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Bargaining power and firm profits in asymmetric duopoly: an inverted-U relationship

Shohei Yoshida ()

Journal of Economics, 2018, vol. 124, issue 2, 139-158

Abstract: Abstract This paper investigates the effects of bargaining power on downstream firms’ profits. Consider a vertically related industry consisting of one upstream and two downstream firms, the latter having different marginal costs. Each pair bargains over a linear wholesale price, and then the downstream firms engage in Cournot competition. We show that the inefficient downstream firm may benefit from an increase in the bargaining power of the upstream firm. Furthermore, we obtain similar results when each downstream firm trades with its exclusive upstream agent, under non-linear demand function, or when downstream firms compete in price.

Keywords: Nash bargaining; Bargaining power; Profit; Firm asymmetry; Vertical relationship (search for similar items in EconPapers)
JEL-codes: D43 J51 L25 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:jeczfn:v:124:y:2018:i:2:d:10.1007_s00712-017-0563-3