Implications of Nash Bargaining for Horizontal Industry Integration

This article shows how horizontal industry integration can arise from transferable asymmetry of technologies and endowments. The Nash bargaining solution suggests that greater technological diversity among coordinating parties yields greater gains from horizontal integration. The framework fits the case where a firm with a superior technology franchises the technology by horizontal integration. The results appear to fit hog production where integration has been primarily horizontal and, in part, broiler production where integration has been both vertical and horizontal. Specifically, technology has been shared through uniform genetic traits, fine-tuned feed rations, and veterinary services specified in grower contracts.     

The importance of structure in linking games

A common approach in modeling negotiations is to apply game theory to single issues. Recent work has suggested that the complexity of international negotiations can be better modeled by linking independent games. Successful linking is possible when the linked issues have compensating asymmetry of similar magnitude. An important result of linked games is that such games produce a greater feasible set of choices relative to the aggregated isolated games. In this paper, we demonstrate that achieving strict dominance of the linked game is not trivial and that results and implications depend on the structures of the isolated games.