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Should the more efficient firm expand? A bargaining perspective

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  • Trudeau, Christian
  • Wang, Zheng

Abstract

It seems intuitive that a firm with a cost advantage will be tempted to expand to chase its rivals from the market. We show that in a market with few participants, in which terms of trade are bargained, the firm might strategically prefer to stay as small as its rival and leave part of the market unserved in order to extract more from its clients. The decision depends on its bargaining skills, but counterintuitively, greater bargaining skills might make the firm less likely to expand.

Suggested Citation

  • Trudeau, Christian & Wang, Zheng, 2019. "Should the more efficient firm expand? A bargaining perspective," Economics Letters, Elsevier, vol. 180(C), pages 25-27.
    • Handle: RePEc:eee:ecolet:v:180:y:2019:i:c:p:25-27
    DOI: 10.1016/j.econlet.2019.04.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Bargaining power; Value capture; Capacity precommitment;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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