Reexamination of Bargaining Power in the Distribution Channel under Possible Price Pass-through Behaviors of Retailers (Bayesian approaches and statistical inference)

Abstract

This research aims to gain deeper insight into the determinants of relative power within the distribution channel. We formulate bilateral bargaining under the generalized Nash bargaining. However, when the retailers think retail price increase can be passed on to their customers, we expect them to engage less in vigorous bargaining. We thus allow for the possibility that the retailers can pass through the price increase negotiated with manufacturers to its customers and that the manufacturers are well aware of such behavior by the retailer. As a result, the parties' bargaining powers are determined endogenously not only from the substitution patterns of their customers but also from the willingness of their customers to accept the retail price increase triggered by the wholesale price increase negotiated between the retailer and the manufacturer. In this manuscript, we present the theoretical result on the barganing power in the distribution channel under this expanded framework.