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Bilateral Oligopoly


  • Jonas Björnerstedt
  • Johan Stennek


In many intermediate goods markets buyers and sellers both have market power. Contracts are usually long-term and negotiated bilaterally, codifying many elements in addition to price. We model such bilateral oligopolies as a set of simultaneous Rubinstein-Ståhl bargainings over contracts specifying price and quantity, between pairs of buyers and sellers. Equilibrium quantities are efficient regardless of concentration. The law of one price does not hold. Prices depend on concentration of capital and concentration of sales. If the quantity sold represents a small share of both the firms’ sales and purchases, the price is close to the Walrasian price. ZUSAMMENFASSUNG - (Bilaterales Oligopol) Auf vielen Märkten für Zwischenprodukte verfügen beide, Käufer und Verkäufer, über Marktmacht. Die Verträge, die üblicherweise langfristig abgeschlossen und bilateral verhandelt werden, legen zahlreiche über den Preis hinausgehende Elemente fest. In diesem Beitrag werden derartige Oligopole als simultane Rubinstein-Ståhl Verhandlungen über Verträge modelliert, die Preise und Mengen zwischen Paaren von Käufern und Verkäufern spezifizieren. Die Gleichgewichtsmengen sind unabhängig von der Konzentration effizient. Das Gesetz des einzigen Preises gilt nicht. Die Preise hängen von der Kapital- und Anbieterkonzentration ab. Wenn die Verkaufsmenge im Verhältnis zum Gesamtabsatz und dem Einkaufsvolumen der Unternehmen klein ist, dann kommt der Preis dem Walrasschen Preis nahe.

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  • Jonas Björnerstedt & Johan Stennek, 2001. "Bilateral Oligopoly," CIG Working Papers FS IV 01-08, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  • Handle: RePEc:wzb:wzebiv:fsiv01-08

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    Cited by:

    1. Björnerstedt, Jonas & Westermark, Andreas, 2006. "Bargaining and Strategic Discrimination," Working Paper Series 2006:6, Uppsala University, Department of Economics.
    2. Stennek, Johan & Tangerås, Thomas, 2006. "Competition vs. Regulation in Mobile Telecommunications," Working Paper Series 685, Research Institute of Industrial Economics.
    3. Manasakis, Constantine & Vlassis, Minas, 2014. "Downstream mode of competition with upstream market power," Research in Economics, Elsevier, vol. 68(1), pages 84-93.
    4. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
    5. Jim Engle-Warnick & Bradley Ruffle, 2002. "Buyer Countervailing Power versus Monopoly Power: Evidence from Experimental Posted-Offer Markets," Economics Papers 2002-W14, Economics Group, Nuffield College, University of Oxford.
    6. Sapi, Geza, 2012. "Bargaining, vertical mergers and entry," DICE Discussion Papers 61, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Alberto Iozzi & Tommaso Valletti, 2014. "Vertical Bargaining and Countervailing Power," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 106-135, August.
    8. Catherine C. de Fontenay & Joshua S. Gans, 2005. "Vertical Integration in the Presence of Upstream Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 544-572, Autumn.
    9. Franz Wirl, 2015. "Downstream and upstream oligopolies when retailer’s effort matters," Journal of Economics, Springer, vol. 116(2), pages 99-127, October.
    10. You, Jing & Imai, Katsushi S. & Gaiha, Raghav, 2016. "Declining Nutrient Intake in a Growing China: Does Household Heterogeneity Matter?," World Development, Elsevier, vol. 77(C), pages 171-191.
    11. Noriaki Matsushima & Laixun Zhao, 2015. "Strategic dual sourcing as a driver for free revealing of innovation," ISER Discussion Paper 0936, Institute of Social and Economic Research, Osaka University.
    12. Suchan Chae & Paul Heidhues, 2004. "Buyers' Alliances for Bargaining Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 731-754, December.
    13. Jonas Björnerstedt & Andreas Westermark, 2009. "The inefficiency of price quantity bargaining," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(2), pages 301-332, August.
    14. Smith, Howard & Thanassoulis, John, 2012. "Upstream uncertainty and countervailing power," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 483-495.
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    17. Qi Feng & Lauren Xiaoyuan Lu, 2012. "The Strategic Perils of Low Cost Outsourcing," Management Science, INFORMS, vol. 58(6), pages 1196-1210, June.
    18. Bedre-Defolie, Ö., 2012. "Vertical coordination through renegotiation," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 553-563.
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    22. Konovalov, Alexander, 2014. "Competition and Cooperation in Network Games," Working Papers in Economics 583, University of Gothenburg, Department of Economics.

    More about this item


    Bilateral Oligopoly; Bargaining; Intermediate Goods; Decentralized Trade; Walrasian Outcome;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design


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