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Bargaining Power and Quantity Discounts to Retailers: Evidence from India’s Pharmaceutical Industry

Author

Listed:
  • Gianluca Antonecchia

    (KU Leuven)

  • Ajay Bhaskarabhatla

    (Erasmus School of Economics)

  • Enrico Pennings

    (Erasmus School of Economics)

Abstract

This paper develops a novel theory linking quantity discounts to bargaining power in scenarios where retailers, organized as a trade association, negotiate uni- form wholesale prices with suppliers. Our theory predicts that suppliers offer greater quantity discounts in regional markets where they possess relatively less bargaining power, as a counterbalance to the higher national wholesale prices negotiated by the retailer trade association. We test these predictions using detailed product-level data from the Indian pharmaceutical industry, where significant geographic variations in quantity discounts are observed. Our findings provide empirical support for the proposed theory.

Suggested Citation

  • Gianluca Antonecchia & Ajay Bhaskarabhatla & Enrico Pennings, 2024. "Bargaining Power and Quantity Discounts to Retailers: Evidence from India’s Pharmaceutical Industry," Tinbergen Institute Discussion Papers 24-048/VII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20240048
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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