Multilateral bargaining and downstream competition

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

53 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)411-430
Journal / PublicationMarketing Science
Volume32
Issue number3
Publication statusPublished - May 2013
Externally publishedYes

Abstract

We examine multilateral bargaining in vertical supply relationships that involve an upstream manufacturer who sells through two competing retailers. In these relationships the negotiations are interdependent, and bargaining externality may arise across the retailers. In addition, the timing by which the manufacturer negotiates with the retailers becomes important. In simultaneous bargaining the retailers negotiate without knowing if an agreement has been reached in the other retail channel, whereas in sequential bargaining the retailer in the second negotiation is able to observe whether an agreement was reached in the first negotiation. We show that simultaneous bargaining is optimal for the manufacturer when the retail prices (and profitability) are similar, and sequential bargaining is preferred when the dispersion in the retail prices is sufficiently large. As a result of ex post renegotiations, the manufacturer may strategically stock out the less profitable retailer who charged a relatively low retail price and exclusively supply only the retailer who charged a relatively high retail price and maintained high channel profitability. Moreover, ex post multilateral bargaining can buffer downstream competition and thus lead to positive retail profits even in markets that are close to perfect competition. © 2013 INFORMS.

Research Area(s)

  • Bargaining externality, Bargaining timing, Multilateral bargaining, Retail competition, Vertical relationships

Bibliographic Note

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Citation Format(s)

Multilateral bargaining and downstream competition. / Guo, Liang; Iyer, Ganesh.
In: Marketing Science, Vol. 32, No. 3, 05.2013, p. 411-430.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review