An Empirical Model of Bargaining with Equilibrium of Fear: Application to Retail Mergers in the French Soft Drink Industry

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Date

13 octobre 2021

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Périmètre
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INRAE

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info:eu-repo/semantics/OpenAccess


Mots-clés

Bilateral oligopoly Bargaining Retail mergers Soft drink industry C - Mathematical and Quantitative Methods/C.C7 - Game Theory and Bargaining Theory/C.C7.C78 - Bargaining Theory • Matching Theory D - Microeconomics/D.D4 - Market Structure, Pricing, and Design/D.D4.D43 - Oligopoly and Other Forms of Market Imperfection L - Industrial Organization/L.L1 - Market Structure, Firm Strategy, and Market Performance/L.L1.L11 - Production, Pricing, and Market Structure • Size Distribution of Firms L - Industrial Organization/L.L1 - Market Structure, Firm Strategy, and Market Performance/L.L1.L14 - Transactional Relationships • Contracts and Reputation • Networks L - Industrial Organization/L.L4 - Antitrust Issues and Policies/L.L4.L41 - Monopolization • Horizontal Anticompetitive Practices L - Industrial Organization/L.L8 - Industry Studies: Services/L.L8.L81 - Retail and Wholesale Trade • e-Commerce


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Céline Bonnet et al., « An Empirical Model of Bargaining with Equilibrium of Fear: Application to Retail Mergers in the French Soft Drink Industry », Archive Ouverte d'INRAE, ID : 10670/1.zpdfwf


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We develop a framework of bilateral oligopoly with a sequential two-stage game in which manufacturers engage in bilateral bargains with retailers competing on a downstream market. We show that bargaining outcomes depend on three different bargaining forces and can be interpreted in terms of "equilibrium of fear". We estimate our framework using data on soft drink purchases in France and find that retailers have a higher bargaining power than manufacturers. Using counterfactual simulations, we highlight that retail mergers always increase retailers' fear of disagreement which weakens their bargaining power vis-à-vis manufacturers and leads to higher wholesale and retail prices.

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