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List Prices, Bargaining and Resultant Productivity Diffusion Delay

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  • John Thanassoulis
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    Abstract

    List prices are not completely credible as take it or leave it prices: buyers are able to seek reductions by bargaining with firms. We show that this realisation leads to the existence of a critical threshold number of competitors in an industry which depends on fundamentals. In industries with fewer competitors than the critical level, there is productivity diffuson delay: low and high cost firms coexist, list prices have no information value and transaction price dispersion exists. Above this critical number of competitors, efficient firms price to drive the high cost firms from the market: productivity gains diffuse to consumers and list prices now carry cost information. Prices never fall to the Bertrand floor however. All of these results are in close keeping with, and provide an explanation for empirical results showing productivity dispersion persistence and the explanatory power of having 5 competitors or more (Nickell 1996).

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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper220.pdf
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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 220.

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    Date of creation: 01 Jan 2005
    Handle: RePEc:oxf:wpaper:220
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    Keywords: Bargaining; List Prices; Transaction Prices; Bertrand Paradox; Productivity; Productivity Diffusion Delay;

    Find related papers by JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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    14. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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