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Threat of Exit as a Source of Bargaining Power

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  • Bergès, Fabian
  • Chambolle, Claire

Abstract

This article analyzes a simple two-period model where two homogenous manufacturers compete to supply a monopolist retailer. The authors 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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Suggested Citation

  • Bergès, Fabian & Chambolle, Claire, 2007. "Threat of Exit as a Source of Bargaining Power," IDEI Working Papers 471, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:7320
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    References listed on IDEAS

    as
    1. Vettas, Nikolaos & Biglaiser, Gary, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.
    2. Claire Chambolle & Sofia Villas-Boas, 2007. "Buyer Power through Producer's Differentiation," Working Papers hal-00243058, HAL.
    3. Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 663-691.
    4. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-430, March.
    5. Marie-Laure Allain, 2002. "The Balance of Power between Producers and Retailers ; a Differentiation model," Recherches économiques de Louvain, De Boeck Université, vol. 68(3), pages 359-370.
    6. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
    7. Biglaiser, Gary & DeGraba, Patrick, 2001. "Downstream Integration by a Bottleneck Input Supplier Whose Regulated Wholesale Prices Are Above Costs," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 302-315, Summer.
    8. Tracy R. Lewis & Huseyin Yildirim, 2002. "Managing Dynamic Competition," American Economic Review, American Economic Association, vol. 92(4), pages 779-797, September.
    9. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 14(28), pages 134-164.
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    Cited by:

    1. Armel Jacques, 2019. "Les enjeux du rachat de Vindémia : quelques éléments de théorie économique," Post-Print hal-03546561, HAL.
    2. Tuuli-Anna Huikuri, 2023. "Constraints and incentives in the investment regime: How bargaining power shapes BIT reform," The Review of International Organizations, Springer, vol. 18(2), pages 361-391, April.

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    More about this item

    JEL classification:

    • 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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