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Market Structure, Bargaining, and Technology Choice

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  • Roman Inderst
  • Christian Wey

Abstract

The first part of this paper analyzes the impact of horizontal mergers of suppliers or retailers on their respective bargaining power. In contrast to previous approaches, we suppose that parties resolve the bargaining problem efficiently. Moreover, by ensuring that demand is independent at all retailers we exclude monopolization effects. We find that downstream mergers are more likely (less likely) if suppliers have increasing (decreasing) unit costs, while upstream mergers are more likely (less likely) if goods are substitutes (complements). In both cases a merger enables the involved parties to gain access to inframarginal rents. In the second part of the paper we explore how the role of bargaining power affects technology choice under different market structures. We isolate two effects. First, if retailers are non-integrated, suppliers focus disproportionately more on inframarginal cost reduction. Second, this bias is mitigated if goods are substitutes and suppliers are non-integrated as competition exerts a disciplining force. ZUSAMMENFASSUNG - (Horizontale Unternehmenszusammenschlüsse, Verhandlungen und die Wahl der Produktionstechnologie) Der erste Teil des Aufsatzes zeigt, wie sich horizontale Zusammenschlüsse zwischen Produzenten und Einzelhändlern auf die Verhandlungsmacht der Vertragsparteien auswirken. Im Gegensatz zu vorhergehenden Ansätzen nehmen wir an, daß die Parteien ihre Verhandlungsprobleme effizient lösen. Des weiteren unterstellen wir, daß die Einzelhändler Märkte bedienen, die unabhängig voneinander sind, wodurch Monopolisierungsvorteile ausgeschlossen werden. Unsere Ergebnisse zeigen, daß Einzelhändler einen Zusammenschluß favorisieren, wenn die Stückkosten der Produzenten mit zunehmender Ausbringungsmenge ansteigen. Umgekehrt sind die gemeinsamen Gewinne unabhängiger Einzelhändler höher als bei einem Zusammenschluß, wenn die Stückkosten der Produzenten fallend verlaufen. Die Produzenten können ihre gemeinsamen Gewinne durch eine Fusion steigern, wenn ihre Erzeugnisse substituierbar sind. Stehen die Güter der Produzenten in einem komplementären Verhältnis zueinander, so ist ein Zusammenschluß nicht vorteilhaft. Diese Ergebnisse sind unabhängig von der Struktur der anderen Marktseite. Allgemein gilt sowohl für die Produzenten als auch für die Einzelhändler, daß ein Zusammenschluß den Zugriff auf inframarginale Renten der anderen Marktseite ermöglicht. Im zweiten Teil der Arbeit untersuchen wir, wie die Berücksichtigung von Verhandlungsmacht die Technologiewahl eines Produzenten bei unterschiedlichen Marktstrukturen beeinflußt. Wir können zwei Effekte isolieren. (1) Produzenten haben einen Anreiz Kosteneinsparungen bei inframarginalen Ausbringungsmengen zu Lasten von höheren Gesamtkosten zu tauschen, wenn die Einzelhändler nicht zusammengeschlossen sind. (2) Diese Verzerrung hin zu einer ineffizienten Technologiewahl wird abgemildert, wenn die Güter substituierbar sind und die Produzenten unabhängig agieren, weil Konkurrenz eine disziplinierende Funktion ausübt.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 00-12.

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Length: 32 pages
Date of creation: Sep 2000
Date of revision:
Publication status: Published as a revised version under the title "Bargaining, Mergers, and Technology Choice" in the RAND Journal of Economic , Vol. 34(1), Spring 2003, pp. 1-19.
Handle: RePEc:wzb:wzebiv:fsiv00-12

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Keywords: Merger; Bargaining Power; Technology Choice;

References

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  1. Kamien, Morton I & Zang, Israel, 1990. "The Limits of Monopolization through Acquisition," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 465-99, May.
  2. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
  3. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
  4. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Discussion Paper 1991-36, Tilburg University, Center for Economic Research.
  5. Lewis Makowski & Joseph Ostroy, 2010. "Appropriation and Efficiency: A Revision of the First Theorem of Welfare Economics," Levine's Working Paper Archive 1386, David K. Levine.
  6. Felli, Leonardo & Roberts, Kevin W S, 2002. "Does Competition Solve the Hold-up Problem?," CEPR Discussion Papers 3535, C.E.P.R. Discussion Papers.
  7. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  8. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
  9. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
  10. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  11. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Wiley Blackwell, vol. 63(3), pages 375-410, July.
  12. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-97, June.
  13. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
  14. Farrell, J. & Shapiro, C., 1988. "Horizontal Mergers: An Equilibrium Analysis," Papers 17, Princeton, Woodrow Wilson School - Discussion Paper.
  15. Gaudet, Gerard & Salant, Stephen W., 1992. "Mergers of producers of perfect complements competing in price," Economics Letters, Elsevier, vol. 39(3), pages 359-364, July.
  16. Gaudet, Gerard & Salant, Stephen W, 1991. "Increasing the Profits of a Subset of Firms in Oligopoly Models with Strategic Substitutes," American Economic Review, American Economic Association, vol. 81(3), pages 658-65, June.
  17. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  18. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
  19. Jun, Byoung Heon, 1989. "Non-cooperative Bargaining and Union Formation," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 59-76, January.
  20. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
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