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The Effects of Downstream Distributor Chains on Upstream Producer Entry: A Bargaining Perspective

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  • Suchan Chae
  • Paul Heidhues

Abstract

This paper studies the effects of integration among downstream local distributors on the entry of upstream producers in a bargaining theoretic framework. We show that integration of downstream distributors may increase their bargaining power vis-à-vis upstream producers and thus lower incentives for entry in the upstream production industry. In order to explain price formation in such a market, we use a bargaining solution that generalizes the Nash solution. ZUSAMMENFASSUNG - (Die Auswirkungen von überregionalen Zusammenschlüssen zwischen Händlern auf den Eintritt von Inputproduzenten: Eine verhandlungstheoretische Analyse) Ausgehend von Industrien mit hohen Fixkosten und vernachlässigbaren Grenzkosten (z. B. Film- und Fernsehindustrie, Softwareindustrie, Pharmazeutische Industrie) wird untersucht wie sich überregionale Zusammenschlüsse zwischen "downstream distributors" (z. B. Kinos, Kabelbetreiber, Einzelhändler, Krankenhäuser bzw. Krankenkassen) auf die Angebotsvielfalt auswirken. Aus verhandlungstheoretischer Sicht werden dazu in diesem Beitrag die Auswirkungen von überregionalen Zusammenschlüssen zwischen lokalen "downstream distributors" auf den Eintritt von Inputpoduzenten untersucht. Es wird gezeigt wie überregionale Zusammenschlüsse von "distributors" deren Verhandlungsmacht gegenüber Inputproduzenten erhöhen können und damit die Anreize zum Eintritt in die Inputindustrie verringern können. Hierzu verwendet dieser Beitrag eine verallgemeinerte Nash-Verhandlungslösung, um die Preisbildung auf dem Inputmarkt zu analysieren.

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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 99-35.

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Length: 53 pages
Date of creation: Dec 1999
Date of revision:
Handle: RePEc:wzb:wzebiv:fsiv99-35

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References

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  1. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  2. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-61, July.
  3. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
  4. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  5. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
  6. Tasneem Chipty & Christopher M. Snyder, 1999. "The Role Of Firm Size In Bilateral Bargaining: A Study Of The Cable Television Industry," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 326-340, May.
  7. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-37, September.
  9. Suchan Chae & Paul Heidhues, 1999. "Bargaining Power of a Coalition in Parallel Bargaining: Advantage of Multiple Cable System Operators," CIG Working Papers FS IV 99-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  10. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
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Cited by:
  1. Suchan Chae & Paul Heidhues, 2003. "Buyers’ Alliances for Bargaining Power," CIG Working Papers SP II 2003-24, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  2. Hans-Theo Normann & Bradley J. Ruffle & Christopher M. Snyder, 2007. "Do buyer-size discounts depend on the curvature of the surplus function? Experimental tests of bargaining models," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 747-767, 09.

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