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List Prices, Bargaining and Resultant Productivity Diffusion Delay

  • John Thanassoulis
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    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
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    Handle: RePEc:oxf:wpaper:220
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    1. Stewart, M.B., 1989. "Union Wage Differentials, Product Market Influences And The Division Of Rents," The Warwick Economics Research Paper Series (TWERPS) 323, University of Warwick, Department of Economics.
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    14. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, October.
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