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Multi-product bargaining, bundling, and buyer power

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  • Dertwinkel-Kalt, Markus
  • Wey, Christian

Abstract

We re-consider the bilateral bargaining problem of a multi-product, manufacturer-retailer trading relationship. O'Brien and Shaffer (Rand JE 35:573-598, 2005) have shown that the unbundling of contracts leads to downward distorted production levels if seller power is strong, while otherwise the joint profit maximizing quantities are contracted (which is also always the case when bundling contracts are feasible). We show that the unbundling of contracts also leads to downward distorted output levels when the buyer firm has sufficient (Nash) bargaining power (i.e., buyer power). Our result is driven by cost substitutability (diseconomies of scope).

Suggested Citation

  • Dertwinkel-Kalt, Markus & Wey, Christian, 2019. "Multi-product bargaining, bundling, and buyer power," DICE Discussion Papers 329, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:329
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    References listed on IDEAS

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    1. Berman, Barry, 2011. "Strategies to reduce product proliferation," Business Horizons, Elsevier, vol. 54(6), pages 551-561.
    2. Daniel P. O'Brien & Greg Shaffer, 2005. "Bargining, Bundling, and Clout: The Portfolio Effects of Horizontal Mergers," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 573-595, Autumn.
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    2. Inderst, Roman & Griem, Fabian & Schaffer, Greg, 2022. "Tying under Double-Marginalization," CEPR Discussion Papers 17314, C.E.P.R. Discussion Papers.
    3. Cao, Qingning & Tang, Yuanzhao & Perera, Sandun & Zhang, Jianqiang, 2022. "Manufacturer- versus retailer-initiated bundling: Implications for the supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 157(C).
    4. Hirsch, Stefan & Koppenberg, Maximilian, 2020. "Power imbalances in French food retailing: Evidence from a production function approach to estimate market power," Economics Letters, Elsevier, vol. 194(C).
    5. Sahoo, Satya & Cariou, Pierre, 2024. "Unveiling the influence of bargaining power in shipping: An empirical study on iron ore freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 192(C).

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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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