Revealing Bargaining Power through Actual Wholesale Prices

Carlos Noton and Andrés Elberg ()

No 304, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: In vertical relationships in which manufacturers and retailers bargain over a volatile surplus, negotiated wholesale prices determine both payoffs and risk-exposure. We use actual wholesale prices to study the profit-sharing and risk-sharing behavior of manufacturers and retailers in the co.ee industry in Chile. We find that small manufacturers are able to earn a sizable fraction of the pie and that most cost shocks are absorbed by upstream manufacturers. Thus, our results do not support the standard assumption that bargaining firms deal equally well with risk. Calibration of a Nash bargaining model confirms small manufacturers' substantial bargaining power.

Date: 2013
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Working Paper: Revealing Bargaining Power through Actual Wholesale Prices (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:304

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