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Simultaneous Price And Quantity Determination In A Joint Profit Maximizing Bilateral Monopoly Under Dynamic Optimization

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  • Devadoss Stephen
  • Cooper Kevin

Abstract

A long standing controversial issue in the literature surrounding the bilateral monopoly is the determinacy of equilibrium price and quantity when the seller and buyer maximize their joint profits. This controversy led to incorrect presentation of bilateral monopoly solutions in the literature. In this study, we employ a dynamic optimization model to simultaneously determine the equilibrium price and quantity transacted between the buyer and seller. We also show that for the bilateral monopoly to achieve equilibrium they must transact the intermediate product at the hint profit maximizing level. Any deviation from this level will result in one party exercising greater control than the other, and thus, will lead to a situation of either pure monopsony or monopoly, or nonexistence of both parties. [D43, C78,C61]

Suggested Citation

  • Devadoss Stephen & Cooper Kevin, 2000. "Simultaneous Price And Quantity Determination In A Joint Profit Maximizing Bilateral Monopoly Under Dynamic Optimization," International Economic Journal, Taylor & Francis Journals, vol. 14(1), pages 71-84.
    • Handle: RePEc:taf:intecj:v:14:y:2000:i:1:p:71-84
    DOI: 10.1080/10168730000000005
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    References listed on IDEAS

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    1. Androkovich, Robert A, 1989. "An Attempt at Making the Principal-Agent Paradigm Operational," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 16(2), pages 285-300.
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    Cited by:

    1. Dasgupta Siddhartha & Devadoss Stephen, 2002. "Equilibrium Contracts In a Bilateral Monopoly with Unequal Bargaining Powers," International Economic Journal, Taylor & Francis Journals, vol. 16(1), pages 43-71.
    2. Tian, Li, 2006. "The Strategic Effect of Private Label in a Vertical Bargaining Model," Research Reports 170112, University of Connecticut, Food Marketing Policy Center.
    3. Jean-Philippe Gervais & Stephen Devadoss, 2006. "Estimating bargaining strengths of Canadian chicken producers and processors using a bilateral monopoly framework," Agribusiness, John Wiley & Sons, Ltd., vol. 22(2), pages 159-173.
    4. Baoubadi Atozou & Lota D. Tamini & Maurice Doyon, 2022. "Bargaining power and risk from substitutability between products attributes the case of specialty eggs in Canada," Agricultural Economics, International Association of Agricultural Economists, vol. 53(1), pages 155-169, January.
    5. repec:ags:uconnr:149205 is not listed on IDEAS
    6. Elges, Carsten, 2016. "Die Preissetzung in Unternehmenskooperationen: Erste spieltheoretische Überlegungen," Arbeitspapiere 162, University of Münster, Institute for Cooperatives.

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