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The Effects of Downstream Distributor Chains on Upstream Producer Entry: A Bargaining Perspective

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  • Suchan Chae
  • Paul Heidhues

Abstract

This paper studies the effects of integration among downstream local distributors on the entry of upstream producers in a bargaining theoretic framework. We show that integration of downstream distributors may increase their bargaining power vis-à-vis upstream producers and thus lower incentives for entry in the upstream production industry. In order to explain price formation in such a market, we use a bargaining solution that generalizes the Nash solution. ZUSAMMENFASSUNG - (Die Auswirkungen von überregionalen Zusammenschlüssen zwischen Händlern auf den Eintritt von Inputproduzenten: Eine verhandlungstheoretische Analyse) Ausgehend von Industrien mit hohen Fixkosten und vernachlässigbaren Grenzkosten (z. B. Film- und Fernsehindustrie, Softwareindustrie, Pharmazeutische Industrie) wird untersucht wie sich überregionale Zusammenschlüsse zwischen "downstream distributors" (z. B. Kinos, Kabelbetreiber, Einzelhändler, Krankenhäuser bzw. Krankenkassen) auf die Angebotsvielfalt auswirken. Aus verhandlungstheoretischer Sicht werden dazu in diesem Beitrag die Auswirkungen von überregionalen Zusammenschlüssen zwischen lokalen "downstream distributors" auf den Eintritt von Inputpoduzenten untersucht. Es wird gezeigt wie überregionale Zusammenschlüsse von "distributors" deren Verhandlungsmacht gegenüber Inputproduzenten erhöhen können und damit die Anreize zum Eintritt in die Inputindustrie verringern können. Hierzu verwendet dieser Beitrag eine verallgemeinerte Nash-Verhandlungslösung, um die Preisbildung auf dem Inputmarkt zu analysieren.

Suggested Citation

  • Suchan Chae & Paul Heidhues, 1999. "The Effects of Downstream Distributor Chains on Upstream Producer Entry: A Bargaining Perspective," CIG Working Papers FS IV 99-35, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  • Handle: RePEc:wzb:wzebiv:fsiv99-35
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    3. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    4. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-459, June.
    5. Tasneem Chipty & Christopher M. Snyder, 1999. "The Role Of Firm Size In Bilateral Bargaining: A Study Of The Cable Television Industry," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 326-340, May.
    6. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-430, March.
    7. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-1161, July.
    8. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-1037, September.
    9. Suchan Chae & Paul Heidhues, 1999. "Bargaining Power of a Coalition in Parallel Bargaining: Advantage of Multiple Cable System Operators," CIG Working Papers FS IV 99-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    10. Morton I. Kamien & Israel Zang, 1990. "The Limits of Monopolization Through Acquisition," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 465-499.
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    Cited by:

    1. Hans-Theo Normann & Bradley J. Ruffle & Christopher M. Snyder, 2007. "Do buyer-size discounts depend on the curvature of the surplus function? Experimental tests of bargaining models," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 747-767, September.
    2. Suchan Chae & Paul Heidhues, 2004. "Buyers' Alliances for Bargaining Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 731-754, December.

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