Vertical bargaining and retail competition

Auteurs

• Germain Gaudin

Paramètres

• Affaires et économie

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This paper investigates the effects of mergers, entry, and exit in retail markets when input prices are negotiated. Results are derived from a model of bilateral Nash-bargaining between manufacturers and retailers which allows for general forms of demand and retail competition. Whether countervailing buyer power arises, in the form of lower negotiated prices following greater retail concentration, depends on the pass-through rate of input to retail prices. Countervailing buyer power arises in equilibrium for a broad class of demand forms, and its magnitude depends on the degree of product differentiation. However, it generally does not translate into lower retail prices because of heightened market power at the retail level. Finally, the linear demand systems commonly used in the literature impose strong restrictions on the results

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• Année de publication: 2015