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Bilateral Oligopoly


  • Björnerstedt, Jonas
  • Stennek, Johan


In many intermediate goods markets buyers and sellers both have market power. Contracts are usually long-term and negotiated bilaterally, codifying many elements in addition to price. We model such bilateral oligopolies as a set of simultaneous Rubinstein-Ståhl bargainings between pairs of buyers and sellers, over contracts specifying price and quantity. Equilibrium quantities are efficient regardless of concentration. The law of one price does not hold. Prices depend on concentration of capital and concentration of sales. If the quantity sold represents a small share of both the firms' sales and purchases, then the price is close to the Walrasian price.

Suggested Citation

  • Björnerstedt, Jonas & Stennek, Johan, 2001. "Bilateral Oligopoly," CEPR Discussion Papers 2864, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2864

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    References listed on IDEAS

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    Cited by:

    1. Björnerstedt, Jonas & Westermark, Andreas, 2006. "Bargaining and Strategic Discrimination," Working Paper Series 2006:6, Uppsala University, Department of Economics.
    2. Stennek, Johan & Tangerås, Thomas, 2006. "Competition vs. Regulation in Mobile Telecommunications," Working Paper Series 685, Research Institute of Industrial Economics.
    3. Manasakis, Constantine & Vlassis, Minas, 2014. "Downstream mode of competition with upstream market power," Research in Economics, Elsevier, vol. 68(1), pages 84-93.
    4. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
    5. Jim Engle-Warnick & Bradley Ruffle, 2002. "Buyer Countervailing Power versus Monopoly Power: Evidence from Experimental Posted-Offer Markets," Economics Papers 2002-W14, Economics Group, Nuffield College, University of Oxford.
    6. Sapi, Geza, 2012. "Bargaining, vertical mergers and entry," DICE Discussion Papers 61, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Alberto Iozzi & Tommaso Valletti, 2014. "Vertical Bargaining and Countervailing Power," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 106-135, August.
    8. Catherine C. de Fontenay & Joshua S. Gans, 2005. "Vertical Integration in the Presence of Upstream Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 544-572, Autumn.
    9. Franz Wirl, 2015. "Downstream and upstream oligopolies when retailer’s effort matters," Journal of Economics, Springer, vol. 116(2), pages 99-127, October.
    10. You, Jing & Imai, Katsushi S. & Gaiha, Raghav, 2016. "Declining Nutrient Intake in a Growing China: Does Household Heterogeneity Matter?," World Development, Elsevier, vol. 77(C), pages 171-191.
    11. Noriaki Matsushima & Laixun Zhao, 2015. "Strategic dual sourcing as a driver for free revealing of innovation," ISER Discussion Paper 0936, Institute of Social and Economic Research, Osaka University.
    12. Suchan Chae & Paul Heidhues, 2004. "Buyers' Alliances for Bargaining Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 731-754, December.
    13. Jonas Björnerstedt & Andreas Westermark, 2009. "The inefficiency of price quantity bargaining," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(2), pages 301-332, August.
    14. Smith, Howard & Thanassoulis, John, 2012. "Upstream uncertainty and countervailing power," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 483-495.
    15. Smith, Howard & Thanassoulis, John, 2006. "Upstream Competition and Downstream Buyer Power," CEPR Discussion Papers 5803, C.E.P.R. Discussion Papers.
    16. Biglaiser, Gary & Vettas, Nikolaos, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.
    17. Qi Feng & Lauren Xiaoyuan Lu, 2012. "The Strategic Perils of Low Cost Outsourcing," Management Science, INFORMS, vol. 58(6), pages 1196-1210, June.
    18. Bedre-Defolie, Ö., 2012. "Vertical coordination through renegotiation," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 553-563.
    19. de Fontenay, Catherine C. & Gans, Joshua S., 2004. "Can vertical integration by a monopsonist harm consumer welfare?," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 821-834, June.
    20. Milliou, Chrysovalantou & Petrakis, Emmanuel & Vettas, Nikolaos, 2003. "Endogenous Contracts Under Bargaining in Competing Vertical Chains," CEPR Discussion Papers 3976, C.E.P.R. Discussion Papers.
    21. Allan Collard-Wexler & Gautam Gowrisankaran & Robin S. Lee, 2014. "“Nash-in-Nash” Bargaining: A Microfoundation for Applied Work," NBER Working Papers 20641, National Bureau of Economic Research, Inc.
    22. Konovalov, Alexander, 2014. "Competition and Cooperation in Network Games," Working Papers in Economics 583, University of Gothenburg, Department of Economics.

    More about this item


    bargaining; bilateral oligopoly; decentralized trade; intermediate goods; walrasian outcome;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General


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