Working Paper: CEPR ID: DP2864
Authors: Jonas Bjrnerstedt; Johan Stennek
Abstract: 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 between pairs of buyers and sellers, over contracts specifying price and quantity. 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, then the price is close to the Walrasian price.
Keywords: bargaining; bilateral oligopoly; decentralized trade; intermediate goods; Walrasian outcome
JEL Codes: C70; D20; D40; L10; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bargaining structure (simultaneous Rubinstein-Stahl) (C78) | market efficiency (G14) |
| bilateral oligopoly (D43) | equilibrium quantities are socially efficient (D61) |
| market power (L11) | inefficiencies in the final goods market (D61) |
| horizontal mergers (L22) | increase profits for merging firms (L21) |
| horizontal mergers (L22) | decrease profits for trading partners (F10) |