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Revealing Bargaining Power through Actual Wholesale Prices

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  • Carlos Noton
  • Andrés Elberg

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Abstract

In vertical relationships in which manufacturers and retailers bargain over a volatile surplus, negotiated wholesale prices determine both payoffs and risk-exposure. We use actual wholesale prices to study the profit-sharing and risk-sharing behavior of manufacturers and retailers in the co.ee industry in Chile. We find that small manufacturers are able to earn a sizable fraction of the pie and that most cost shocks are absorbed by upstream manufacturers. Thus, our results do not support the standard assumption that bargaining firms deal equally well with risk. Calibration of a Nash bargaining model confirms small manufacturers' substantial bargaining power.

Suggested Citation

  • Carlos Noton & Andrés Elberg, 2013. "Revealing Bargaining Power through Actual Wholesale Prices," Documentos de Trabajo 304, Centro de Economía Aplicada, Universidad de Chile.
  • Handle: RePEc:edj:ceauch:304
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    Cited by:

    1. Köhler, Christian, 2014. "Bargaining in vertical relationships and suppliers' R&D profitability," ZEW Discussion Papers 14-087, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Tröster, Bernhard & Staritz, Cornelia, 2015. "Global commodity chains, financial markets, and local market structures: Price risks in the coffee sector in Ethiopia," Working Papers 56, Österreichische Forschungsstiftung für Internationale Entwicklung (ÖFSE) / Austrian Foundation for Development Research.

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