Bargaining Ability and Competitive Advantage: Empirical Evidence from Medical Devices
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game theory
bargaining theory
healthcare
industrial organization
market structure
firm strategy
market performance
microeconomics
market pricing
Business Administration, Management, and Operations
Business Analytics
Business Intelligence
Equipment and Supplies
Health and Medical Administration
Health Information Technology
Management Sciences and Quantitative Methods
Operations and Supply Chain Management
Organizational Behavior and Theory
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Abstract
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.