Co-opetition under Endogenous Bargaining Power

Posted: 9 Jun 2018 Last revised: 18 Oct 2018

See all articles by Qiankai Qing

Qiankai Qing

Department of Transportation and Logistics Engineering, Wuhan University of Science and Technology

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management

Tianhu Deng

Tsinghua University

Leon Yang Chu

University of Southern California - Data Sciences and Operations; Cheung Kong Graduate School of Business

Date Written: May 24, 2018

Abstract

Motivated by partial vertical integration practices, this paper investigates how a monopoly allocates a key input between the monopoly and his alliance(s) with complementary partner(s) for the delivery of final product or service. The firms' bargaining powers are endogenously impacted by the monopoly's key input allocation and the monopoly and partner(s) have inherently different cost-efficiencies in supplying complementary input. We show that the endogenous bargaining power delivers a fundamental trade-off between a partner's bargaining power and her cost advantage in the monopoly's input allocation decisions. The monopoly may strategically allocate partial key input internally for his own product/service delivery even when the monopoly's and the alliance(s)' products/services are perfect substitutes and the monopoly has a cost disadvantage. In a single partner setting, the firms' equilibrium input allocations are independent of their complementary input costs. Surprisingly, in a two-partner setting, the monopoly may allocate more key input internally for his own delivery of the final product or service as he becomes less cost-efficient; and symmetric allocation for cost-asymmetric partners and asymmetric allocation for cost-symmetric partners may exist. Our main insights extend to settings with alternative timelines, a general channel profit function, alternative bargaining power functions, and alternative outside options. Our study provides a strategic perspective for the coexistence of both cooperative and competing relationships between the monopoly and the partner(s).

Keywords: Endogenous Bargaining Power; Key Input Allocation; Partial Vertical Integration; Game Theory

Suggested Citation

Qing, Qiankai and Chen, Ying-Ju and Deng, Tianhu and Chu, Leon Yang, Co-opetition under Endogenous Bargaining Power (May 24, 2018). Available at SSRN: https://ssrn.com/abstract=3184111 or http://dx.doi.org/10.2139/ssrn.3184111

Qiankai Qing (Contact Author)

Department of Transportation and Logistics Engineering, Wuhan University of Science and Technology ( email )

947 Heping Avenue
Wuhan
China

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Tianhu Deng

Tsinghua University ( email )

Beijing, 100084
China

Leon Yang Chu

University of Southern California - Data Sciences and Operations ( email )

701 Exposition Blvd
Los Angeles, CA
United States

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

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