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Bargaining Power and the Effects of Joint Negotiation: The “Recapture Effect”

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  • Craig T. Peters

    (Economic Analysis Group, U.S. Department of Justice)

Abstract

This paper considers the effects of joint negotiation when suppliers and intermediaries engage in bilateral negotiation over inclusion of a supplier’s product in an intermediary’s network. I identify conditions under which joint negotiation by two suppliers increases the suppliers’ bargaining power even when the suppliers’ products are not substitutes for each other. In particular, joint negotiation increases the suppliers’ bargaining power if suppliers face smaller losses from disagreement when they negotiate jointly. If joint negotiation causes an intermediary to lose more of its consumers to competing intermediaries in the event of disagreement, and if the suppliers sell their products through these competing intermediaries, the suppliers will be able to recapture more of the sales that they would otherwise have lost in the event of disagreement. As a result, joint negotiation reduces the suppliers’ losses from disagreement, and thus enhances their bargaining power. I show that these conditions arise under a wide range of assumptions about consumer preferences.

Suggested Citation

  • Craig T. Peters, 2014. "Bargaining Power and the Effects of Joint Negotiation: The “Recapture Effect”," EAG Discussions Papers 201403, Department of Justice, Antitrust Division.
    • Handle: RePEc:doj:eagpap:201403
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    File URL: https://www.justice.gov/atr/public/eag/308877a.html
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    Cited by:

    1. David Dranove & Christopher Ody, 2019. "Employed for Higher Pay? How Medicare Payment Rules Affect Hospital Employment of Physicians," American Economic Journal: Economic Policy, American Economic Association, vol. 11(4), pages 249-271, November.
    2. David J. Balan & Keith Brand, 2023. "Simulating Hospital Merger Simulations," Journal of Industrial Economics, Wiley Blackwell, vol. 71(1), pages 47-123, March.
    3. Thomas Koch & Shawn W. Ulrick, 2021. "Price Effects Of A Merger: Evidence From A Physicians' Market," Economic Inquiry, Western Economic Association International, vol. 59(2), pages 790-802, April.
    4. Laurence C. Baker & M. Kate Bundorf & Daniel P. Kessler, 2017. "Does Multispecialty Practice Enhance Physician Market Power?," NBER Working Papers 23871, National Bureau of Economic Research, Inc.
    5. Lin, Haizhen & McCarthy, Ian M. & Richards, Michael, 2021. "Hospital Pricing Following Integration with Physician Practices," Journal of Health Economics, Elsevier, vol. 77(C).
    6. Richards, Michael R. & Seward, Jonathan A. & Whaley, Christopher M., 2022. "Treatment consolidation after vertical integration: Evidence from outpatient procedure markets," Journal of Health Economics, Elsevier, vol. 81(C).
    7. Capps, Cory & Dranove, David & Ody, Christopher, 2018. "The effect of hospital acquisitions of physician practices on prices and spending," Journal of Health Economics, Elsevier, vol. 59(C), pages 139-152.

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