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Centralized or decentralized bargaining in a vertically-related market with endogenous price/quantity choices

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  • Hong-Ren Din

    (Soochow University)

  • Chia-Hung Sun

    (Soochow University)

Abstract

This research investigates the endogenous choice of centralized or decentralized bargaining and the type of strategic variables by taking into account a vertically-related market where an upstream monopolist bargains with two downstream firms via a two-part input pricing contract. We show that centralized bargaining is the unique equilibrium mode of bargaining, given Cournot or Bertrand competition in the product market, and that choosing the quantity (price) contract is the dominant strategy for both downstream firms under decentralized (centralized) bargaining. When both the type of strategic variables and the mode of bargaining are endogenously determined, the unique equilibrium outcome is choosing price contracts and centralized bargaining, which maximize industry profit, but there is market failure.

Suggested Citation

  • Hong-Ren Din & Chia-Hung Sun, 2023. "Centralized or decentralized bargaining in a vertically-related market with endogenous price/quantity choices," Journal of Economics, Springer, vol. 138(1), pages 73-94, January.
    • Handle: RePEc:kap:jeczfn:v:138:y:2023:i:1:d:10.1007_s00712-022-00793-9
    DOI: 10.1007/s00712-022-00793-9
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    More about this item

    Keywords

    Vertically-related markets; Centralized Nash bargaining; Decentralized Nash bargaining; Endogenous strategic variables; Two-part pricing contract;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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