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On the Role of Bargaining Power in Nash-in-Nash Bargaining: When More is Less

Marc Escrihuela-Villar (), Walter Ferrarese () and Alberto Iozzi
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Marc Escrihuela-Villar: Universitat de les Illes Balears
Walter Ferrarese: Universitat de Les Illes Balears

No 550, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: In bargainings, the parties’ bargaining powers (BPs) may determine not only how the surplus is shared (share effect), but also the size of the aggregate surplus (size effect). Since the size effect may be positive or negative, the sign of the effect on a party’s payoff of a change in her BP is in principle undetermined. We first look at a general model with a party (the principal) negotiating with two counterparts. At the Nash-in-Nash solution, we show that the equilibrium payoff of the principal may be decreasing in her BP. Necessary conditions for this to occur are an asymmetric bargaining model and a sufficiently large difference in the way the bargained upon variables affect the principal’s payoff. We then revisit a standard linear vertical industry with one upstream firm, downstream Cournot competition, and public contracts. A negative effect on the upstream firm’s profits deriving from an increase in her BP is always found when the firm has different BPs across the negotiations and final goods are complements. We map these conditions to those characterised in the general model.

Keywords: bargaining power; Nash-in-Nash; vertical relations (search for similar items in EconPapers)
JEL-codes: D21 D43 D86 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2022-12-22, Revised 2022-12-22
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
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