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Search and Bargaining in the Product Market and Price Rigidities

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  • Mirko Abbritti

    (University of Navarra)

  • Tommaso Trani

    (University of Navarra)

Abstract

This paper develops a model of pricing dynamics in business to business relationships. The formation of business relationships is a process of search and matching between retailers and wholesalers in the product market. The size of each transaction and the related price are set through bilateral bargaining. There are three key factors that influence the reaction of prices and quantities to cost shocks: the persistence of the shocks, the adjustment of final goods production and the search externalities. These factors determine how firms adjust, whether through the intensive margin, through the extensive margin or through both. Based on this, we assess to what extent wholesale prices affect the allocation of consumption in closed economy and deliver expenditure switching in open economy.

Suggested Citation

  • Mirko Abbritti & Tommaso Trani, 2014. "Search and Bargaining in the Product Market and Price Rigidities," Faculty Working Papers 09/14, School of Economics and Business Administration, University of Navarra.
    • Handle: RePEc:una:unccee:wp0914
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    File URL: http://www.unav.edu/documents/10174/6546776/wp_09_14.pdf
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    References listed on IDEAS

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