Date of this Version
In markets where buyers and suppliers negotiate, supplier costs, buyer willingness to pay, and competition determine only a range of potential prices, leaving the final price dependent on other factors (e.g., negotiating skill), which I call bargaining ability. I use a model of buyer demand and buyer–supplier bargaining, combined with detailed data on prices and quantities at the buyer–supplier relationship level, to estimate firm-bargaining abilities in the context of the coronary stent industry where different hospitals (buyers) pay different prices for the exact same product from the same supplier. I estimate that (1) variation in bargaining abilities explains 79% of this price variation, (2) bargaining ability has a large firm-specific component, and (3) changes in the distribution of bargaining abilities over time suggest learning as an important channel influencing bargaining ability.
Originally published in Management Science © 2014 INFORMS
This is a pre-publication version. The final version is available at http://dx.doi.org/10.1287/mnsc.2014.2006
economics, game theory, bargaining theory, healthcare, industrial organization, market structure, firm strategy, market performance, microeconomics, market pricing
Grennan, M. (2014). Bargaining Ability and Competitive Advantage: Empirical Evidence from Medical Devices. Management Science, 60 (12), 3011-3025. http://dx.doi.org/10.1287/mnsc.2014.2006
Business Administration, Management, and Operations Commons, Business Analytics Commons, Business Intelligence Commons, Equipment and Supplies Commons, Health and Medical Administration Commons, Health Information Technology Commons, Management Sciences and Quantitative Methods Commons, Operations and Supply Chain Management Commons, Organizational Behavior and Theory Commons
Date Posted: 26 June 2018
This document has been peer reviewed.