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Centralized Bargaining with Pre-donation in a Vertically Related Industry

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  • Saglam, Ismail

Abstract

This paper studies the incentives for, and the welfare effects of, pre-donation in a vertically related industry where two downstream firms that produce a homogenous good jointly bargain, using the generalized Nash rule, with an upstream firm over a linear input price before they engage in Cournot competition. We theoretically show that the downstream industry has no incentive to make any pre-donation and this is irrespective of its bargaining power. We also show computationally that (i) the upstream firm finds to make unilateral pre-donation optimal if and only if its bargaining power is sufficiently small and (ii) its optimal pre-donation (whenever positive) always yields Pareto welfare gains.

Suggested Citation

  • Saglam, Ismail, 2022. "Centralized Bargaining with Pre-donation in a Vertically Related Industry," MPRA Paper 114835, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114835
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    References listed on IDEAS

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    1. Saglam, Ismail, 2022. "Two-player bargaining problems with unilateral pre-donation," MPRA Paper 115203, University Library of Munich, Germany.

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    More about this item

    Keywords

    Vertically related industry; Nash bargaining; pre-donation.;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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