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Centralized or decentralized bargaining in a vertically-related market with endogenous price/quantity choices

Hong-Ren Din and Chia-Hung Sun ()
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Hong-Ren Din: Soochow University
Chia-Hung Sun: Soochow University

Journal of Economics, 2023, vol. 138, issue 1, No 4, 73-94

Abstract: Abstract This research investigates the endogenous choice of centralized or decentralized bargaining and the type of strategic variables by taking into account a vertically-related market where an upstream monopolist bargains with two downstream firms via a two-part input pricing contract. We show that centralized bargaining is the unique equilibrium mode of bargaining, given Cournot or Bertrand competition in the product market, and that choosing the quantity (price) contract is the dominant strategy for both downstream firms under decentralized (centralized) bargaining. When both the type of strategic variables and the mode of bargaining are endogenously determined, the unique equilibrium outcome is choosing price contracts and centralized bargaining, which maximize industry profit, but there is market failure.

Keywords: Vertically-related markets; Centralized Nash bargaining; Decentralized Nash bargaining; Endogenous strategic variables; Two-part pricing contract (search for similar items in EconPapers)
JEL-codes: D21 D43 L13 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:138:y:2023:i:1:d:10.1007_s00712-022-00793-9

DOI: 10.1007/s00712-022-00793-9

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