Vertical Bargaining and Countervailing Power

Countervailing Power and Upstream Innovation

We challenge the view that the presence of powerful buyers stifles suppliers’ incentives to innovate. Following Katz (1987), we model countervailing (or buyer) power as the ability of, in particular, large buyers to substitute away from a given supplier. We employ a bargaining framework and find that the presence of larger and more powerful buyers increases a supplier’s incentives to reduce mar...

Countervailing Power and Chain Stores

Countervailing Power and Product Diversity

To analyse the effects of countervailing power on product variety, I construct a model in which a monopoly manufacturer sells a set of differentiated products through a large retailer and many small, competitive retailers. It is shown that an increase in the countervailing power of the large retailer tends to reduce the number of products manufactured in equilibrium, and the reduction in produc...

Wage bargaining and vertical differentiation∗

This article intends to apply the Nash Bargaining solution to wage setting in a vertically differentiated oligopoly and to study its welfare effects. The market outcome crucially depends on the bargaining power attributed to the agents. I show that the resulting wage bargaining structure is likely to lead to another source of distortion that adds to the classical one derived by oligopoly pricin...

Countervailing Power in the Icelandic Cement Industry

The Icelandic Competition Council recently ruled that a cement supplier with 75% market share did not enjoy a dominant position. The ruling was based on countervailing power of local concrete producers. To test whether there are economic arguments for the ruling, we present a simplified model of the industry and apply and adapt some recent work on bilateral oligopoly. We show that, in equilibri...