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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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