Bargaining Power and Firm Profits in Asymmetric Duopoly: An Inverted-U Relationship
30 Pages Posted: 7 Jan 2017
Date Written: January 1, 2017
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, or downstream firms compete in price.
Keywords: Nash bargaining, Bargaining power, Profit, Firm asymmetry, Vertical relationship
JEL Classification: D43, J51, L25
Suggested Citation: Suggested Citation