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Bargaining Competition and Vertical Mergers: The Problem of Model Selection

Author

Listed:
  • Willem H. Boshoff

    (Stellenbosch University)

  • Luke M. Froeb

    (Stellenbosch University
    Vanderbilt University)

  • Wihan Marais

    (Stellenbosch University)

  • Roan J. Minnie

    (Stellenbosch University)

  • Steven Tschantz

    (Vanderbilt University)

Abstract

The assumptions that distinguish bargaining models from one another are rarely observed, but can predetermine their predictions. In this paper, we map various popular bargaining models into vertical merger predictions across two competitive landscapes that consist of either one upstream firm and two downstream firms, or vice-versa. The models’ assumptions vary with respect to: (i) How parties bargain (Derived Demand versus Nash-in-Nash versus Nash-in-Shapley); and (ii) Over what (linear wholesale prices versus two-part prices versus quantity). The paper and accompanying online vertical merger simulator are designed to help economists and enforcers select the bargaining model that best characterizes observed pre-merger competition, and the loss of such competition following a vertical merger, in a given setting. The paper is designed to supplement the horizontal and vertical merger simulators that have been developed by economists who have served at the Federal Trade Commission and Justice Department.

Suggested Citation

  • Willem H. Boshoff & Luke M. Froeb & Wihan Marais & Roan J. Minnie & Steven Tschantz, 2025. "Bargaining Competition and Vertical Mergers: The Problem of Model Selection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 66(2), pages 141-183, February.
    • Handle: RePEc:kap:revind:v:66:y:2025:i:2:d:10.1007_s11151-025-10009-1
    DOI: 10.1007/s11151-025-10009-1
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    More about this item

    Keywords

    Bargaining; Vertical merger; Nash-in-Nash; Nash-in-Shapley; Rectangular logit demand; Nested logit demand;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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