Direct Sales and Bargaining

51 Pages Posted: 10 Feb 2021 Last revised: 4 Mar 2024

See all articles by Javier D. Donna

Javier D. Donna

University of Miami; Rimini Centre for Economic Analysis

Pedro Pereira

Autoridade da Concorrência; Instituto Universitário de Lisboa - ISCTE-IUL - Business Research Unit, BRU-IUL

Yun Pu

Southwestern University of Finance and Economics (SWUFE)

Andre Trindade

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Renan C. Yoshida

Stanford University - Department of Economics

Date Written: February 6, 2024

Abstract

Cutting out the intermediary and selling directly to consumers is an increasingly common strategy by manufacturers. We develop a structural model of vertical relations where manufacturers bargain with retailers and sell their products directly to consumers. Direct sales generate potential consumer gains due to additional competition and product variety but also increase manufacturers’ bargaining leverage, thereby increasing upstream and downstream prices and potentially reducing consumer welfare. We estimate the model using data from the outdoor advertising industry to quantify the bargaining-leverage and welfare effects of direct sales. We discuss the relevance of the bargaining-leverage effect for vertical merger evaluation.

Keywords: Direct-to-consumer sales, bargaining, vertical mergers, double marginalization, advertising

JEL Classification: D43, L13, L42, L51, L81, M37

Suggested Citation

Donna, Javier D. and Pereira, Pedro and Pu, Yun and Trindade, Andre and Yoshida, Renan, Direct Sales and Bargaining (February 6, 2024). Available at SSRN: https://ssrn.com/abstract=3779962 or http://dx.doi.org/10.2139/ssrn.3779962

Javier D. Donna (Contact Author)

University of Miami ( email )

Coral Gables, FL 33124
United States

HOME PAGE: http://https://www.jdonna.org/

Rimini Centre for Economic Analysis ( email )

Pedro Pereira

Autoridade da Concorrência ( email )

1050-138 Lisboa
Portugal

Instituto Universitário de Lisboa - ISCTE-IUL - Business Research Unit, BRU-IUL ( email )

Yun Pu

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Andre Trindade

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

HOME PAGE: http://https://sites.google.com/site/andretrindade/

Renan Yoshida

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

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