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Markups, Markdowns, and Bargaining in a Vertical Supply Chain

Author

Listed:
  • Rémi Avignon
  • Claire Chambolle
  • Etienne Guigue
  • Hugo Molina

Abstract

This article bridges monopoly, monopsony, and countervailing power theories to analyze their welfare implications in a vertical supply chain. We develop a bilateral monopoly model with bargaining that accommodates upstream monopsony and downstream monopoly power. In equilibrium, the ‘‘short-side rule'' applies: the quantity exchanged is determined by the firm willing to trade less. Welfare is maximized when each firm's bargaining power exactly countervails the other's market power. Otherwise, double marginalization arises in the form of double markdownization under excessive downstream bargaining power, or double markupization under excessive upstream bargaining power. We offer novel insights for price regulation and competition policy.

Suggested Citation

  • Rémi Avignon & Claire Chambolle & Etienne Guigue & Hugo Molina, 2025. "Markups, Markdowns, and Bargaining in a Vertical Supply Chain," CESifo Working Paper Series 12026, CESifo.
  • Handle: RePEc:ces:ceswps:_12026
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp12026.pdf
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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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