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Revealing Bargaining Power through Actual Wholesale Prices

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  • Carlos Noton
  • Andrés Elberg

    ()

Abstract

In vertical relationships in which manufacturers and retailers bargain over a volatile surplus, negotiated wholesale prices determine both payoffs and risk-exposure. We use actual wholesale prices to study the profit-sharing and risk-sharing behavior of manufacturers and retailers in the co.ee industry in Chile. We find that small manufacturers are able to earn a sizable fraction of the pie and that most cost shocks are absorbed by upstream manufacturers. Thus, our results do not support the standard assumption that bargaining firms deal equally well with risk. Calibration of a Nash bargaining model confirms small manufacturers' substantial bargaining power. Key words:

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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 304.

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Date of creation: 2013
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Handle: RePEc:edj:ceauch:304

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  1. Bonnet, Céline & Dubois, Pierre, 2009. "Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Nonlinear Pricing and Resale Price Maintenance," IDEI Working Papers 583, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Riddell, W Craig, 1981. "Bargaining under Uncertainty," American Economic Review, American Economic Association, vol. 71(4), pages 579-90, September.
  3. K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management.
  4. Patrick Rey & Thibaud Vergé, 2010. "Resale Price Maintenance And Interlocking Relationships," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 928-961, December.
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  7. Draganska, Michaela & Klapper, Daniel & Villas-Boas, Sofia B, 2008. "A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7v13q46w, Department of Agricultural & Resource Economics, UC Berkeley.
  8. Durevall, Dick, 2004. "Competition in the Swedish Coffee Market," Working Papers in Economics 134, University of Gothenburg, Department of Economics.
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  11. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
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  15. Andres Elberg, 2014. "Heterogeneous Price Dynamics, Synchronization, and Retail Chains: Evidence from Scanner Data," Working Papers 52, Facultad de Economía y Empresa, Universidad Diego Portales.
  16. Nakamura, Emi & Zerom, Dawit, 2008. "Accounting for Incomplete Pass-Through," MPRA Paper 14389, University Library of Munich, Germany.
  17. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-85, April.
  18. Jason Allen & James Chapman & Federico Echenique & Matthew Shum, 2012. "Efficiency and Bargaining Power in the Interbank Loan Market," Working Papers 12-29, Bank of Canada.
  19. Katherine Ho, 2009. "Insurer-Provider Networks in the Medical Care Market," American Economic Review, American Economic Association, vol. 99(1), pages 393-430, March.
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