Ordered Bargaining
Alexander Raskovich, EAG 06-10, September 2006
Published in International Journal of Industrial Organization
(2007).
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Abstract:
When buyers choose the order in which they bargain with suppliers of known
characteristics, prices are determined jointly by bargaining power and
competitive intensity (the outside option to bargain with rival suppliers).
Bargaining power becomes less important to the outcome as competition
intensifies; prices fall to marginal cost in the limit. With positive visit costs and
weak competition, some buyer power is necessary for trade. Incomplete buyer
power may lead to inefficient choice of bargaining order. The robustness of
ordered bargaining to the possibility of price posting and auctions, and welfare
properties of these alternative pricing institutions are also explored.