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Privately-Negotiated Input Prices

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  • David Sappington

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  • Burcin Unel

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Abstract

We examine settings where input prices are negotiated by industry suppliers, rather than dictated by regulators. We find that the input buyer may agree to pay a high price for an input because the high price serves to reduce the intensity of retail price competition with the input seller. Full exploitation of retail customers can result. However, retail price regulation, competition among buyers, and product heterogeneity all can limit the extraction of consumer surplus. We also identify conditions under which input price negotiations will fail to produce a mutually agreeable input price. Copyright Springer Science+Business Media, Inc. 2005

Suggested Citation

  • David Sappington & Burcin Unel, 2005. "Privately-Negotiated Input Prices," Journal of Regulatory Economics, Springer, vol. 27(3), pages 263-280, January.
  • Handle: RePEc:kap:regeco:v:27:y:2005:i:3:p:263-280
    DOI: 10.1007/s11149-005-6624-5
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    File URL: http://hdl.handle.net/10.1007/s11149-005-6624-5
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    References listed on IDEAS

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    1. David E. M Sappington, 2005. "On the Irrelevance of Input Prices for Make-or-Buy Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1631-1638, December.
    2. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
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    Cited by:

    1. Sappington, David E.M., 2006. "On the design of input prices: Can TELRIC prices ever be optimal?," Information Economics and Policy, Elsevier, vol. 18(2), pages 197-215, June.
    2. Doucet, Joseph & Littlechild, Stephen, 2006. "Negotiated settlements: The development of legal and economic thinking," Utilities Policy, Elsevier, vol. 14(4), pages 266-277, December.

    More about this item

    Keywords

    input prices; negotiation; regulation;

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