Threat of Exit as a Source of Bargaining Power
AbstractThis 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.
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Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 471.
Date of creation: Jul 2007
Date of revision:
Publication status: Published in Louvain Economic Review - Recherches Economiques de Louvain, vol.�75, n°3, 2009, p.�353-368.
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Other versions of this item:
- Fabian Bergès & Claire Chambolle, 2009. "Threat of Exit as a Source of Bargaining Power," Discussion Papers (REL - Recherches Economiques de Louvain) 2009033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- 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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