WISSENSCHAFTSZENTRUM BERLIN FÜR SOZIALFORSCHUNG discussion papers SOCIAL SCIENCE RESEARCH CENTER BERLIN

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WISSENSCHAFTSZENTRUM BERLIN FÜR SOZIALFORSCHUNG

discussion papers SOCIAL SCIENCE RESEARCH CENTER BERLIN

FS IV 01 – 08 Bilateral Oligopoly

Jonas Björnerstedt Johan Stennek

Research Institute of Industrial Economics (IUI)

April 2001

ISSN Nr. 0722 - 6748

Forschungsschwerpunkt Markt und politische Ökonomie

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Zitierweise/Citation:

Jonas Björnerstedt, Johan Stennek, Bilateral Oligopoly, Discussion Paper FS IV 01-08, Wissenschaftszentrum Berlin, 2001.

Wissenschaftszentrum Berlin für Sozialforschung gGmbH,

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ABSTRACT

Bilateral Oligopoly

by Jonas Björnerstedt and Johan Stennek^*

In many intermediate goods markets buyers and sellers both have market power.

Contracts are usually long-term and negotiated bilaterally, codifying many elements in addition to price. We model such bilateral oligopolies as a set of simultaneous Rubinstein-Ståhl bargainings over contracts specifying price and quantity, between pairs of buyers and sellers. Equilibrium quantities are efficient regardless of concentration. The law of one price does not hold. Prices depend on concentration of capital and concentration of sales. If the quantity sold represents a small share of both the firms’ sales and purchases, the price is close to the Walrasian price.

Keywords: Bilateral oligopoly, bargaining, intermediate goods, decentralized trade, Walrasian outcome

JEL classification: C7 L1 L4 D2 D4

ZUSAMMENFASSUNG Bilaterales Oligopol

Auf vielen Märkten für Zwischenprodukte verfügen beide, Käufer und Verkäufer, über Marktmacht. Die Verträge, die üblicherweise langfristig abgeschlossen und bilateral verhandelt werden, legen zahlreiche über den Preis hinausgehende Elemente fest. In diesem Beitrag werden derartige Oligopole als simultane Rubinstein-Ståhl Verhand- lungen über Verträge modelliert, die Preise und Mengen zwischen Paaren von Käufern und Verkäufern spezifizieren. Die Gleichgewichtsmengen sind unabhängig von der Konzentration effizient. Das Gesetz des einzigen Preises gilt nicht. Die Preise hängen von der Kapital- und Anbieterkonzentration ab. Wenn die Verkaufsmenge im Verhältnis zum Gesamtabsatz und dem Einkaufsvolumen der Unternehmen klein ist, dann kommt der Preis dem Walrasschen Preis nahe.

* Our work has benefited greatly from discussions with Sven-Olof Fridolfsson, Paul Heidhues, Lars Persson and Jörgen Weibull. We are also grateful for comments from participants in the seminars at the Stockholm School of Economics, the Universitat Autonoma de Barcelona, EEA’00 in Bolzano, EARIE’00 in Lausanne, IUI/CEPR workshop on mergers, and WZB in Berlin. We thank Nancy Adler for editorial support. Both authors would like to thank Jan Wallanders’ and Tom Hedelius’ Foundation

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(27)

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(28)

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(29)

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(30)

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(31)

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(33)

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(34)

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(35)

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