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Buyer Power and Mutual Dependency in a Model of Negotiations

Roman Inderst and Montez, João

No 13644, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study bilateral bargaining between several buyers and sellers in a framework that allowsboth sides, in case of a bilateral disagreement, flexibility to adjust trade with each of their othertrading partners and receive the gross benefit generated by each adjustment. A larger buyer paysa higher per-unit price when buyers’ bargaining power in bilateral negotiations is sufficientlylow, and a lower price otherwise. An analogous result holds for sellers. These predictions, andthe implications of different technologies, are explained by the fact that size is a source of mutualdependency and not an unequivocal source of power.

Date: 2019-04
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