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Complementarity and Bargaining Power

Céline Bonnet, Zohra Mechemache () and Timothy J. Richards

No 16-772, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Bargaining power in vertical channels depends critically on the "disagreement profit" or the opportunity cost to each player should negotiations fail. In a multiproduct context, disagreement profit depends on the degree of substitutability among the products offered by the downstream retailer. Horn and Wolinsky (1988) use this fact to argue for the clear importance of complementarity relationships on bargaining power. We develop an empirical framework that is able to estimate the effect of retail complementarity on bargaining power, and margins earned by manufacturers and retailers in the French soft drink industry. We show that complementarity increases the strength of retailers' bargaining position, so their share of the total margin increases by almost 28% relative to the no-complementarity case.

Keywords: Bargaining power; complementary goods; Nash-in-Nash equilibrium; retailing; soft drinks; vertical relationships (search for similar items in EconPapers)
JEL-codes: D43 L13 M31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
Date: 2017-03
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