Vertical Bargaining under Uncertain Retailer Responsiveness: A Structural Approach

Hugo Molina and Ao Wang
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Ao Wang: University of Warwick

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We develop an empirical framework to analyze vertical relationships with manufacturer-retailer bargaining. Our key innovation is the introduction of a novel Nash-in-Nash bargaining model that incorporates uncertainty in retailers’ pricing responses to wholesale prices. This model extends existing Nash-in-Nash frameworks by relaxing assumptions about the timing of wholesale and retail price setting. We show that our model can be microfounded by a two-stage noncooperative game with delegated negotiations. We propose a two-step strategy that separably identifies bargaining and responsiveness parameters and implies a Generalized Method of Moments estimation procedure.

Date: 2024
New Economics Papers: this item is included in nep-com, nep-gth and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1534

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