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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References listed on IDEAS
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- Gale,Douglas, 2000.
"Strategic Foundations of General Equilibrium,"
Cambridge University Press, number 9780521644105.
- Gale,Douglas, 2000. "Strategic Foundations of General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521643306, September.
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- McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December. Full references (including those not matched with items on IDEAS)