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Complementarity and bargaining power

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  • Timothy J Richards
  • Celine Bonnet
  • Zohra Bouamra-Mechemache

Abstract

Bargaining power in vertical channels depends critically on the ‘disagreement profit’ or the opportunity cost to each player should negotiations fail. In a multiproduct context, disagreement profit depends on the degree of substitutability among the products offered by the downstream retailer. We develop an empirical framework that is able to estimate the effect of retail complementarity on bargaining power, and margins earned by manufacturers and retailers in the French soft-drink industry. We show that complementarity increases the strength of retailers’ bargaining position, so their share of the total margin increases by almost 28 per cent relative to the no-complementarity case.

Suggested Citation

  • Timothy J Richards & Celine Bonnet & Zohra Bouamra-Mechemache, 2018. "Complementarity and bargaining power," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(3), pages 297-331.
    • Handle: RePEc:oup:erevae:v:45:y:2018:i:3:p:297-331.
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    Cited by:

    1. Timothy J. Richards & Gordon J. Klein & Celine Bonnet & Zohra Bouamra-Mechemache, 2020. "Strategic Obfuscation and Retail Pricing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(4), pages 859-889, December.
    2. MacDonald, James M. & Dong, Xiao & Fuglie, Keith O., 2023. "Concentration and Competition in U.S. Agribusiness," Economic Information Bulletin 337566, United States Department of Agriculture, Economic Research Service.
    3. Richards, Timothy J. & Rutledge, Zachariah, 2022. "Agricultural Labor and Bargaining Power," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322101, Agricultural and Applied Economics Association.
    4. Alessandro Bonanno & Carlo Russo & Luisa Menapace, 2018. "Market power and bargaining in agrifood markets: A review of emerging topics and tools," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 6-23, December.
    5. Maximilian Koppenberg, 2023. "Markups, organic agriculture and downstream concentration at the example of European dairy farmers," Agricultural Economics, International Association of Agricultural Economists, vol. 54(2), pages 161-178, March.

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    More about this item

    Keywords

    bargaining power; complementary goods; Nash-in-Nash equilibrium; retailing; soft drinks; vertical relationships;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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