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Threat of Exit as a Source of Bargaining Power*

Published online by Cambridge University Press:  17 August 2016

Claire Chambolle
Affiliation:
INRA (UR 1303 ALISS, 94205 Ivry-sur-Seine, France), and Ecole Polytechnique (Department of Economics,91128 Palaiseau, France); mail: claire.chambolle@polytechnique.edu
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Résumé

Cet article analyse un jeu simple à deux périodes dans lequel deux producteurs farbriquant un bien homogène se font concurrence pour fournir un distributeur. Nous montrons que si les producteurs sont vulnérables (c'est-à-dire s'ils sont exclus du marché en cas d'une commande insuffisante en première période), ils peuvent alors exploiter cette menace de banqueroute et s'approprier ainsi tout le profit de l'industrie en première période. En effet, le distributeur sera prêt à accepter de payer un prix fort aux producteurs pour éviter leur faillite et maintenir ainsi une concurrence en amont pour la seconde période. Ce résultat reste valable dans le cas d'une structure de marché différente ou de contrats verticaux plus élaborés.

Summary

Summary

This article analyzes a simple two-period model where two homogenous manufacturers compete to supply a monopolist retailer. We show that if manufacturers are vulnerable (i.e if they are likely to exit the market in case of insufficient orders in the first period), they may exploit their threat of exit to capture the whole first period industry profit. Indeed, the retailer will accept to pay the high price to the manufacturers in order to secure upstream competition in the second period. Results are robust under different market structures or contract types.

Type
Research Article
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2009 

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Footnotes

*

We thank Roman Inderst, Patrick Rey, Thibaud Vergé, and seminars participants at EARIE 2005 and EEA 2006. The title of a previous version of this article was: “The Reciprocal Producer's Incentives to Prey and Retailer's Buyer Power”

References

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