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Bargaining Power and Firm Profits in Asymmetric Duopoly: An Inverted-U Relationship

30 Pages Posted: 7 Jan 2017  

Shohei Yoshida

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: January 1, 2017

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, or downstream firms compete in price.

Keywords: Nash bargaining, Bargaining power, Profit, Firm asymmetry, Vertical relationship

JEL Classification: D43, J51, L25

Suggested Citation

Yoshida, Shohei, Bargaining Power and Firm Profits in Asymmetric Duopoly: An Inverted-U Relationship (January 1, 2017). Available at SSRN: https://ssrn.com/abstract=2892177 or http://dx.doi.org/10.2139/ssrn.2892177

Shohei Yoshida (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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