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Bargaining Ability and Competitive Advantage: Empirical Evidence from Medical Devices

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  • Matthew Grennan

    () (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

In markets where buyers and suppliers negotiate, supplier costs, buyer willingness to pay, and competition determine only a range of potential prices, leaving the final price dependent on other factors (e.g., negotiating skill), which I call bargaining ability . I use a model of buyer demand and buyer–supplier bargaining, combined with detailed data on prices and quantities at the buyer–supplier relationship level, to estimate firm-bargaining abilities in the context of the coronary stent industry where different hospitals (buyers) pay different prices for the exact same product from the same supplier. I estimate that (1) variation in bargaining abilities explains 79% of this price variation, (2) bargaining ability has a large firm-specific component, and (3) changes in the distribution of bargaining abilities over time suggest learning as an important channel influencing bargaining ability.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2006 . This paper was accepted by Bruno Cassiman, business strategy.

Suggested Citation

  • Matthew Grennan, 2014. "Bargaining Ability and Competitive Advantage: Empirical Evidence from Medical Devices," Management Science, INFORMS, vol. 60(12), pages 3011-3025, December.
  • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:12:p:3011-3025
    DOI: 10.1287/mnsc.2014.2006
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    File URL: http://dx.doi.org/10.1287/mnsc.2014.2006
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Claudia Keser & Stephan Müller & Emmanuel Peterlé & Holger A. Rau, 2018. "Bargaining and the Role of Negotiators’ Competitiveness," CIRANO Working Papers 2018s-08, CIRANO.
    2. repec:bla:stratm:v:38:y:2017:i:1:p:64-92 is not listed on IDEAS
    3. Catherine C. Fontenay & Joshua S. Gans, 2014. "Bilateral Bargaining with Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 756-788, December.
    4. repec:wly:econjl:v:128:y:2018:i:614:p:2380-2413 is not listed on IDEAS
    5. Matthew Backus & Tom Blake & Steven Tadelis, 2015. "Cheap Talk, Round Numbers, and the Economics of Negotiation," NBER Working Papers 21285, National Bureau of Economic Research, Inc.
    6. Jeon, Doh-Shin & Menicucci, Domenico, 2014. "Buyer Group and Buyer Power When Sellers Compete," TSE Working Papers 14-543, Toulouse School of Economics (TSE), revised Nov 2017.
    7. Victor Manuel Bennett, 2013. "Organization and Bargaining: Sales Process Choice at Auto Dealerships," Management Science, INFORMS, vol. 59(9), pages 2003-2018, September.
    8. Seung-Hyun Lee & Hee Jin Mun & Kyung Min Park, 2015. "When is dependence on other organizations burdensome? The effect of asymmetric dependence on internet firm failure," Strategic Management Journal, Wiley Blackwell, vol. 36(13), pages 2058-2074, December.
    9. Alberto Iozzi & Tommaso Valletti, 2014. "Vertical Bargaining and Countervailing Power," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 106-135, August.
    10. repec:eee:gamebe:v:115:y:2019:i:c:p:265-288 is not listed on IDEAS
    11. Toulemon, L.;, 2017. "Regional Purchasing Groups and Hospital Medicine Prices: Evidence from Group Creations," Health, Econometrics and Data Group (HEDG) Working Papers 17/21, HEDG, c/o Department of Economics, University of York.
    12. repec:bla:stratm:v:38:y:2017:i:6:p:1193-1211 is not listed on IDEAS
    13. Stuart V. Craig & Keith Marzilli Ericson & Amanda Starc, 2018. "How Important Is Price Variation Between Health Insurers?," NBER Working Papers 25190, National Bureau of Economic Research, Inc.
    14. Léa Toulemon, 2016. "Job quality, Health Insurance and the Price of Medical Products: Essays in Applied Economics," Sciences Po publications info:hdl:2441/3018m4nhj18, Sciences Po.
    15. repec:ehu:cuader:33231 is not listed on IDEAS
    16. Germain Gaudin, 2018. "Vertical Bargaining and Retail Competition: What Drives Countervailing Power?," Economic Journal, Royal Economic Society, vol. 128(614), pages 2380-2413, September.
    17. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, vol. 103(1), pages 145-177, February.
    18. Matthew Grennan & Ashley Swanson, 2016. "Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining," NBER Working Papers 22039, National Bureau of Economic Research, Inc.
    19. Matthew Grennan & Robert Town, 2015. "Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices," NBER Working Papers 20981, National Bureau of Economic Research, Inc.
    20. Carlos Noton & Andrés Elberg, 2013. "Revealing Bargaining Power through Actual Wholesale Prices," Documentos de Trabajo 304, Centro de Economía Aplicada, Universidad de Chile.
    21. repec:bla:stratm:v:38:y:2017:i:1:p:17-41 is not listed on IDEAS
    22. repec:bla:stratm:v:39:y:2018:i:11:p:2859-2876 is not listed on IDEAS
    23. Aghadadashli, Hamid & Dertwinkel-Kalt, Markus & Wey, Christian, 2016. "The Nash bargaining solution in vertical relations with linear input prices," Economics Letters, Elsevier, vol. 145(C), pages 291-294.
    24. repec:eee:ecolet:v:174:y:2019:i:c:p:169-172 is not listed on IDEAS
    25. repec:bla:stratm:v:38:y:2017:i:10:p:1964-1985 is not listed on IDEAS

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