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Price Setting is Popular among Firms: Will It Persist in Vertical Relationships with Market Uncertainty?

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  • Gianpaolo Rossini

    (University of Bologna)

Abstract

Price setting is popular among firms selling to consumers driven in their buying decisions mostly by price signals since they take for granted availability of goods. Is this enterprise behaviour justified when production is vertically organized along several stages? We consider two different market strategies, price setting and quantity setting and two different vertical relationships: a non symmetric (imperfectly) competitive one and a cooperative one based on a bargaining among vertical sections of production. In the first scenario, with certainty, price and quantity settings are alike, while with uncertainty quantity setting is preferred by firms. With bargaining and quantity setting, uncertainty leads to an asymmetric distribution of gains along the vertical chain of production.

Suggested Citation

  • Gianpaolo Rossini, 2007. "Price Setting is Popular among Firms: Will It Persist in Vertical Relationships with Market Uncertainty?," Rivista di Politica Economica, SIPI Spa, vol. 97(3), pages 33-50, May-June.
    • Handle: RePEc:rpo:ripoec:v:97:y:2007:i:3:p:33-50
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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