Skip to main content
SpringerLink
Log in

Privately-Negotiated Input Prices

  • Published:
Journal of Regulatory Economics Aims and scope Submit manuscript

Abstract

We examine settings where input prices are negotiated by industry suppliers, rather than dictated by regulators. We find that the input buyer may agree to pay a high price for an input because the high price serves to reduce the intensity of retail price competition with the input seller. Full exploitation of retail customers can result. However, retail price regulation, competition among buyers, and product heterogeneity all can limit the extraction of consumer surplus. We also identify conditions under which input price negotiations will fail to produce a mutually agreeable input price.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • M. Armstrong (1998) ArticleTitle‘‘Network Interconnection in Telecommunications’’. Economic urnal 108 IssueID448 545–564

    Google Scholar 

  • Armstrong M. 2002. ‘‘The Theory of Access Pricing and Interconnection.’’ In Handbook of Telecommunications Economics: Volume I, edited by M. Cave, S. Majumdar, and I. Vogelsang. Amsterdam: North-Holland.

  • M. Armstrong S. Cowan J. Vickers (1994) Regulatory Reform: Economic Analysis and British Experience The MIT Press Cambridge, MA

    Google Scholar 

  • W. Baumol J. G. Sidak (1994) ArticleTitle‘‘The Pricing of Inputs Sold to Competitors’’. Yale Journal on Regulation 11 IssueID1 171–202

    Google Scholar 

  • T. R. Beard D. Kaserman J. Mayo (2001) ArticleTitle‘‘Regulation, Vertical Integration, and Sabotage’‘ Journal of Industrial Economics 49 IssueID3 319–333

    Google Scholar 

  • K. Binmore A. Rubinstein A. Wolinsky (1986) ArticleTitle‘‘The Nash Bargaining Solution in Economic Modeling’’. Rand Journal of Economics 17 IssueID2 176–188

    Google Scholar 

  • M. Carter J. Wright (2003) ArticleTitle‘‘Asymmetric Network Interconnection’’. Review of Industrial Organization 22 IssueID1 27–46

    Google Scholar 

  • Y. Chen (2001) ArticleTitle‘‘On Vertical Mergers and their Competitive Effects’’. Rand Journal of Economics 32 IssueID4 667–685

    Google Scholar 

  • W. Dessein (2003) ArticleTitle‘‘Network Competition in Nonlinear Pricing’’. Rand Journal of Economics 34 IssueID4 593–611

    Google Scholar 

  • Federal Communications Commission. 1996. {\it Implementation of the Local Competition Provisions in the Telecommunications Act of 1996}, First Report and Order, CC Docket Nos. 96--98, 95--185 (Released August 8).

  • H. Hotelling (1929) ArticleTitle‘‘Stability in Competition’’. Economic Journal 39 IssueID153 41–57

    Google Scholar 

  • J. Laffont P. Rey J. Tirole (1998a) ArticleTitle‘‘Network Competition: I. Overview and Nondiscriminatory Pricing’‘ Rand Journal of Economics 29 IssueID1 1–37

    Google Scholar 

  • J. Laffont P. Rey J. Tirole (1998b) ArticleTitle‘Network Competition: II. Price Discrimination’‘ Rand Journal of Economics 29 IssueID1 38–56

    Google Scholar 

  • Latour A. ‘‘Qwest and MCI Set Lease Rates for Local Service’’. Wall Street Journal 2004. ; (June 1): A3, A13.

  • D. Mandy (2000) ArticleTitle‘‘Killing the Goose that Laid the Golden Egg: Only the Data Know Whether Sabotage Pays’’. Journal of Regulatory Economics 17 IssueID2 157–172

    Google Scholar 

  • Powell M. 2004. ‘‘Remarks at the National Association of Regulatory Commissioners General Assembly’’. Available at http://www.fcc.gov/commissioners/powell/mkpspeeches2004.html.

  • Richtel M. 2004. ‘‘SBC, Tired of Courts and Regulators, Offers to Settle Network Leasing Issue’’. New York Times (March 4): C4.

  • G. Rosston R. Noll (2002) ArticleTitle‘‘The Economics of the Supreme Court’s Decision on Forward Looking Costs’‘ Review of Network Economics 1 IssueID2 81–89

    Google Scholar 

  • A. Roth (1979) Axiomatic Models of Bargaining Springer-Verlag Berlin

    Google Scholar 

  • Sappington D. 2005. ‘‘On the Irrelevance of Input Prices for Make or Buy Decisions’’. American Economic Review (forthcoming).

  • Sappington, D. 2005. ‘‘On the Irrelevance of Input Prices for Make or Buy Decisions.’’ American Economic Review (forthcoming).

  • D. Sibley D. Weisman (1998) ArticleTitle‘‘Raising Rivals’ Costs: The Entry of an Upstream Monopolist into Downstream Markets’’. Information Economics and Policy 10 IssueID4 451–470

    Google Scholar 

  • V. Skreta (2004) ‘‘Interconnection Negotiations Between Telecommunication Networks and Universal Service Objectives’‘ University of Minnesota mimeo

    Google Scholar 

  • B. Unel (2004) ‘‘International Strategic Alliances: Effects on Welfare’‘ University of Florida mimeo

    Google Scholar 

  • I. Vogelsang (2003) ArticleTitle‘‘Price Regulation of Access to Telecommunications Networks’’. Journal of Economic Literature 41 IssueID3 830–862

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, University of Florida, Gainesville, FL 32611-7140

    David E. M. Sappington & Burcin Unel

Authors
  1. David E. M. Sappington
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Burcin Unel
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to David E. M. Sappington.

Additional information

We thank Dennis Weisman and two anonymous referees for very helpful comments

JEL classification: L43, L51, L22

Rights and permissions

Reprints and permissions

About this article

Cite this article

Sappington, D.E.M., Unel, B. Privately-Negotiated Input Prices. J Regul Econ 27, 263–280 (2005). https://doi.org/10.1007/s11149-005-6624-5

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11149-005-6624-5

Keywords

Search

Navigation