In intermediate goods markets, both buyers and sellers normally have market power, and sales are based on bilaterally negotiated contracts specifying both price and quantity. In our model, pairs of buyers and sellers meet in bilateral but interdependent Rubinstein-Ståhl negotiations. The outcome has a simple characterization (a Nash equilibrium in Nash bargaining solutions) suitable for applied work. Equilibrium quantities are efficient regardless of concentration and also with few “trading links”. The law of one price does not hold. In addition to relation-specific characteristics, prices depend on both upstream and downstream concentration and on the structure of trading links. The requirements necessary for Walrasian prices are stronger than usually believed.
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- Gale,Douglas, 2000.
"Strategic Foundations of General Equilibrium,"
Cambridge University Press, number 9780521644105, December.
- Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 375-410.
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- Davidson, Carl, 1988. "Multiunit Bargaining in Oligopolistic Industries," Journal of Labor Economics, University of Chicago Press, vol. 6(3), pages 397-422, July.
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