DP2864 | Bilateral Oligopoly

Publication Date

18/06/2001

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Abstract

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 between pairs of buyers and sellers, over contracts specifying price and quantity. 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, then the price is close to the Walrasian price.