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Multimarket linkages, buyer power, and the productivity puzzle

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  • Noriaki Matsushima
  • Laixun Zhao

Abstract

This paper examines the relationship between firms' productivity improvement and the volume of exports, and shows that it can be sometimes negative. Specifically, we simultaneously take into account intermediate retailers (i.e., vertically) and multimarket linkages (i.e., horizontally). We find that an improvement of the manufacturing productivity affects the bargained wholesale prices in opposite directions in asymmetric markets, causing retailers to make corresponding changes that look surprising. This result can explain for the empirical "left productivity puzzle" found in Ghemawat et al. (2010). Related to this issue is the relationship between buyer power (caused by a retail merger) and profitability. Contrary to the existing literature, in an extended setup, we find that the merger between the downstream duopolists does not improve their profits if their bargaining power is strong vs. upstream suppliers.

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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0797.

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Date of creation: Oct 2010
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Handle: RePEc:dpr:wpaper:0797

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  1. Ghemawat, Pankaj & Llano, Carlos & Requena, Francisco, 2010. "Competitiveness and interregional as well as international trade: The case of Catalonia," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 415-422, July.
  2. Volker Nocke & Peter EsoLucy White, 2007. "Competition for Scarce Resources," Economics Series Working Papers 365, University of Oxford, Department of Economics.
  3. Roman Inderst & Tommaso M. Valletti, 2008. "Buyer Power and the “Waterbed Effect”," CEIS Research Paper 107, Tor Vergata University, CEIS, revised 10 Jul 2008.
  4. Inderst, Roman & Wey, Christian, 2002. "Buyer Power and Supplier Incentives," CEPR Discussion Papers 3547, C.E.P.R. Discussion Papers.
  5. Robert C. Marshall & Antonio Merlo, 2004. "Pattern Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 239-255, 02.
  6. Rey, Patrick & Tirole, Jean, 2003. "A Primer on Foreclosure," IDEI Working Papers 203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005.
  7. Lommerud, Kjell Erik & Straume, Odd Rune & Sorgard, Lars, 2005. "Downstream merger with upstream market power," European Economic Review, Elsevier, vol. 49(3), pages 717-743, April.
  8. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
  9. Naylor, Robin A., 2002. "Industry profits and competition under bilateral oligopoly," Economics Letters, Elsevier, vol. 77(2), pages 169-175, October.
  10. Dobson, Paul W., 1994. "Multifirm unions and the incentive to adopt pattern bargaining in oligopoly," European Economic Review, Elsevier, vol. 38(1), pages 87-100, January.
  11. Zhao, Laixun, 2001. "Unionization, vertical markets, and the outsourcing of multinationals," Journal of International Economics, Elsevier, vol. 55(1), pages 187-202, October.
  12. Matsushima, Noriaki, 2006. "Industry profits and free entry in input markets," Economics Letters, Elsevier, vol. 93(3), pages 329-336, December.
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