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Bilateral Monopolies and Incentives for Merger

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  • Henrick Horn
  • Asher Wolinsky

Abstract

We analyze a duopoly in which firms acquire inputs through bilateral monopoly relations with suppliers. We combine a bargaining model with a duopoly model to examine how input prices and profits are affected by the structures of the upstream and downstream industries, by the demand relations among the final products, and by the nature of bargaining between suppliers and firms. We find that the implications for the incentives for merger are significantly different from what they would be in an environment in which input prices are not determined in bargaining.

Suggested Citation

  • Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
  • Handle: RePEc:rje:randje:v:19:y:1988:i:autumn:p:408-419
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