Threat of Exit as a Source of Bargaining Power

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Threat of Exit as a Source of Bargaining Power

Author Info

Fabian Bergès
Claire Chambolle

Abstract

This article analyzes a simple two-period model where two homogenous manufacturers compete to supply a monopolist retailer. We show that if manufacturers are vulnerable (i.e if they are likely to exit the market in case of insufficient orders in the first period), they may exploit their threat of exit to capture the whole first period industry profit. Indeed, the retailer will accept to pay the high price to the manufacturers in order to secure upstream competition in the second period. Results are robust under different market structures or contract types. JEL Classification ? L14, D21, Q12.

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Article provided by De Boeck Université in its journal Recherches économiques de Louvain.

Volume (Year): 75 (2009)
Issue (Month): 3 ()
Pages: 353-368
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Handle: RePEc:cai:reldbu:rel_753_0353

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Find related papers by JEL classification:
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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