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Economic Theory

, Volume 40, Issue 2, pp 301–332 | Cite as

The inefficiency of price quantity bargaining

  • Jonas Björnerstedt
  • Andreas WestermarkEmail author
Research Article

Abstract

In bargaining between a buyer and several sellers on prices and quantities, strategic inefficiencies arise. By reallocating quantities between agreements, the buyer can increase its share of the surplus. With two symmetric sellers producing substitutes, the quantity in the first agreement will be higher than the efficient quantity, and the quantity in the last lower, thus implying that sellers are strategically discriminated. When asymmetries are not too large and sellers produce substitutes, the buyer first agrees with the seller with the lowest marginal cost and only the most efficient order of agreement is an equilibrium outcome. When goods are complements, both equilibrium quantities are lower than the efficient levels.

Keywords

Bargaining Inefficiencies Strategic discrimination Substitutability 

JEL Classification

C72 C78 L10 

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Copyright information

© Springer-Verlag 2008

Authors and Affiliations

  1. 1.Swedish Competition AuthorityStockholmSweden
  2. 2.Department of EconomicsUppsala UniversityUppsalaSweden

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