Article

Complementarity and Bargaining Power

Céline Bonnet, Zohra Bouamra-Mechemache, and Timothy J. Richards

Abstract

Bargaining power in vertical channels depends critically on the "disagreement profit" or the opportunity cost to each player should negotiations fail. In a multiproduct context, disagreement profit depends on the degree of substitutability among the products offered by the downstream retailer. Horn and Wolinsky (1988) use this fact to argue for the clear importance of complementarity relationships on bargaining power. We develop an empirical framework that is able to estimate the effect of retail complementarity on bargaining power, and margins earned by manufacturers and retailers in the French soft drink industry. We show that complementarity increases the strength of retailers' bargaining position, so their share of the total margin increases by almost 28% relative to the no-complementarity case.

Keywords

Bargaining power; complementary goods; Nash-in-Nash equilibrium; retailing; soft drinks; vertical relationships;

JEL codes

  • D43: Oligopoly and Other Forms of Market Imperfection
  • L13: Oligopoly and Other Imperfect Markets
  • M31: Marketing

Replaces

Céline Bonnet, Zohra Bouamra-Mechemache, and Timothy J. Richards, Complementarity and Bargaining Power, TSE Working Paper, n. 16-772, March 2017.

Reference

Céline Bonnet, Zohra Bouamra-Mechemache, and Timothy J. Richards, Complementarity and Bargaining Power, European Review of Agricultural Economics, 2018.

See also

Published in

European Review of Agricultural Economics, 2018