University of Melbourne

Efficiency in Multilateral Vertical Contracting: Bargaining and the Nature of Competition

Email address: J.Gans@unimelb.edu.au

Abstract:
We study bargaining between many upstream and downstream when downstream firms compete with one another. Using new results in non-cooperative bargaining we demonstrate that such bargaining results in efficient arrangements -- that is, upstream-downstream contracts are written so as to implement a monopoly outcome downstream. This result occurs despite the fact that upstream and downstream firms bargaining in a decentralised manner (i.e., bilaterally) and regardless of the number of upstream and downstream firms, the nature of downstream competition, the relative bargaining power of upstream and downstream firms and does not require all pairs of upstream and downstream firms to negotiate with one another. We demonstrate that despite being efficient, this bargaining model leads to an equilibrium division of the rents useful in analysing entry, exclusivity, integration and strategic commitment.

PDF file of paper: Not available.

Session: Industrial Organization Theory I

Time: Saturday, 7 July, 8am - 9:30am

Room: D