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Centralized bargaining with pre‐donation in a vertically related industry

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  • Ismail Saglam

Abstract

This paper studies the incentives for, and the welfare effects of, pre‐donation in a vertically related industry where two downstream firms that produce a homogenous good jointly bargain, using the generalized Nash rule, with an upstream firm over a linear input price before they engage in Cournot competition. We theoretically show that the downstream industry has no incentive to make any pre‐donation and this is irrespective of its bargaining power and also irrespective of whether it is a monopoly or a symmetric or asymmetric duopoly. Also, irrespective of the said structures of the downstream industry, we show computationally that (i) the upstream firm finds to make unilateral pre‐donation optimal if and only if its bargaining power is sufficiently small and (ii) its optimal pre‐donation (whenever positive) always yields Pareto welfare gains.

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  • Ismail Saglam, 2023. "Centralized bargaining with pre‐donation in a vertically related industry," Manchester School, University of Manchester, vol. 91(3), pages 233-259, June.
    • Handle: RePEc:bla:manchs:v:91:y:2023:i:3:p:233-259
    DOI: 10.1111/manc.12430
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    References listed on IDEAS

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    1. Saglam, Ismail, 2022. "Two-player bargaining problems with unilateral pre-donation," MPRA Paper 115203, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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