() and Johan Stennek
Jonas Björnerstedt: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Johan Stennek: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Abstract: In intermediate goods markets, both buyers and sellers normally have market power, and sales are based on bilaterally negotiated contracts specifying both price and quantity. In our model, pairs of buyers and sellers meet in bilateral but interdependent Rubinstein-Ståhl negotiations. The outcome has a simple characterization (a Nash equilibrium in Nash bargaining solutions) suitable for applied work. Equilibrium quantities are efficient regardless of concentration and also with few “trading links”. The law of one price does not hold. In addition to relation-specific characteristics, prices depend on both upstream and downstream concentration and on the structure of trading links. The requirements necessary for Walrasian prices are stronger than usually believed.
42 pages, April 27, 2001
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