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Bargaining power and firm profits in asymmetric duopoly: an inverted-U relationship

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  • Shohei Yoshida

    (Osaka University)

Abstract

This paper investigates the effects of bargaining power on downstream firms’ profits. Consider a vertically related industry consisting of one upstream and two downstream firms, the latter having different marginal costs. Each pair bargains over a linear wholesale price, and then the downstream firms engage in Cournot competition. We show that the inefficient downstream firm may benefit from an increase in the bargaining power of the upstream firm. Furthermore, we obtain similar results when each downstream firm trades with its exclusive upstream agent, under non-linear demand function, or when downstream firms compete in price.

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  • Shohei Yoshida, 2018. "Bargaining power and firm profits in asymmetric duopoly: an inverted-U relationship," Journal of Economics, Springer, vol. 124(2), pages 139-158, June.
    • Handle: RePEc:kap:jeczfn:v:124:y:2018:i:2:d:10.1007_s00712-017-0563-3
    DOI: 10.1007/s00712-017-0563-3
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    Cited by:

    1. Ismail Saglam, 2023. "Centralized bargaining with pre‐donation in a vertically related industry," Manchester School, University of Manchester, vol. 91(3), pages 233-259, June.
    2. Aditya Bhattacharjea & Srishti Gupta, 2024. "Alternative forms of buyer power in a vertical duopoly: implications for profits, welfare, and cost pass-through," Journal of Economics, Springer, vol. 142(2), pages 163-198, July.
    3. Xingtang Wang & Leonard F.S. Wang, 2021. "External bargaining versus internal manipulation: A theory of managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 134-142, January.
    4. Wang, Xingtang & Wang, Leonard F.S., 2021. "Vertical product differentiation, managerial delegation and social welfare in a vertically-related market," Mathematical Social Sciences, Elsevier, vol. 113(C), pages 149-159.
    5. Marcella Scrimitore, 2019. "Endogenizing managerial delegation: A new result under Nash bargaining and network effects," EERI Research Paper Series EERI RP 2019/15, Economics and Econometrics Research Institute (EERI), Brussels.
    6. Shin Kishimoto, 2020. "The welfare effect of bargaining power in the licensing of a cost-reducing technology," Journal of Economics, Springer, vol. 129(2), pages 173-193, March.
    7. Hong-Ren Din & Chia-Hung Sun, 2023. "Centralized or decentralized bargaining in a vertically-related market with endogenous price/quantity choices," Journal of Economics, Springer, vol. 138(1), pages 73-94, January.

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    More about this item

    Keywords

    Nash bargaining; Bargaining power; Profit; Firm asymmetry; Vertical relationship;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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