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Privately-Negotiated Input Prices

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Author Info

  • David Sappington

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  • Burcin Unel

    ()

Abstract

We examine settings where input prices are negotiated by industry suppliers, rather than dictated by regulators. We find that the input buyer may agree to pay a high price for an input because the high price serves to reduce the intensity of retail price competition with the input seller. Full exploitation of retail customers can result. However, retail price regulation, competition among buyers, and product heterogeneity all can limit the extraction of consumer surplus. We also identify conditions under which input price negotiations will fail to produce a mutually agreeable input price. Copyright Springer Science+Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11149-005-6624-5
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Bibliographic Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 27 (2005)
Issue (Month): 3 (01)
Pages: 263-280

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Handle: RePEc:kap:regeco:v:27:y:2005:i:3:p:263-280

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Web page: http://www.springerlink.com/link.asp?id=100298

Related research

Keywords: input prices; negotiation; regulation;

References

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  1. David E. M Sappington, 2005. "On the Irrelevance of Input Prices for Make-or-Buy Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1631-1638, December.
  2. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
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Cited by:
  1. Sappington, David E.M., 2006. "On the design of input prices: Can TELRIC prices ever be optimal?," Information Economics and Policy, Elsevier, vol. 18(2), pages 197-215, June.
  2. Doucet, Joseph & Littlechild, Stephen, 2006. "Negotiated settlements: The development of legal and economic thinking," Utilities Policy, Elsevier, vol. 14(4), pages 266-277, December.

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