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Information Exchange in Retail Markets with Uncertainty about Downstream Costs

Author

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  • Daniel Herold

    () (Justus-Liebig-University Giessen)

Abstract

An information exchange between two producers selling independent products to the same retailer can have ambiguous effects on market efficiency and surplus. When a retailer's costs are unobservable the producers may have an incentive to communicate about their negotiations with that retailer. If each producer is allowed to place one offer the producers will have no incentive to exchange information. However, the retailer may communicate that he refused the first offer to the other firm which subsequently might place a lower offer. When one firm is allowed to place a second offer, two equilibria involve communication between the producers. In a separating equilibrium an information exchange ensures that agreement will always be found. In a hybrid equilibrium, the likelihood that agreement is found is less likely.

Suggested Citation

  • Daniel Herold, 2017. "Information Exchange in Retail Markets with Uncertainty about Downstream Costs," MAGKS Papers on Economics 201750, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201750
    as

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2017/50-2017_herold.pdf
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    References listed on IDEAS

    as
    1. Stéphane Caprice & Patrick Rey, 2015. "Buyer Power from Joint Listing Decision," Economic Journal, Royal Economic Society, vol. 125(589), pages 1677-1704, December.
    2. Kunreuther, Howard & Richard, Jean Francois, 1971. "Optimal Pricing and Inventory Decisions for Non-Seasonal Items," Econometrica, Econometric Society, vol. 39(1), pages 173-175, January.
    3. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-430, March.
    4. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
    5. Bruno Jullien & Patrick Rey, 2007. "Resale price maintenance and collusion," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 983-1001, December.
    6. Smith, Howard & Thanassoulis, John, 2012. "Upstream uncertainty and countervailing power," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 483-495.
    7. repec:eee:jouret:v:84:y:2008:i:3:p:281-296 is not listed on IDEAS
    8. Greg Shaffer, 1991. "Slotting Allowances and Resale Price Maintenance: A Comparison of Facilitating Practices," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 120-135, Spring.
    9. Drew Fudenberg & Jean Tirole, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Oxford University Press, vol. 50(2), pages 221-247.
    10. Joel Sobel & Ichiro Takahashi, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Oxford University Press, vol. 50(3), pages 411-426.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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