Health Care Management Papers

Document Type

Technical Report

Date of this Version

12-2014

Publication Source

Management Science

Volume

60

Issue

12

Start Page

3011

Last Page

3025

DOI

10.1287/mnsc.2014.2006

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.

Copyright/Permission Statement

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

Keywords

economics, game theory, bargaining theory, healthcare, industrial organization, market structure, firm strategy, market performance, microeconomics, market pricing

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Date Posted: 26 June 2018

This document has been peer reviewed.