| Abstract: | We examine settings where input prices are negotiated by industry suppliers, rather than dictated by regulators. We find that the input buyer may agree to pay a high price for an input because the high price serves to reduce the intensity of retail price competition with the input seller. Full exploitation of retail customers can result. However, retail price regulation, competition among buyers, and product heterogeneity all can limit the extraction of consumer surplus. We also identify conditions under which input price negotiations will fail to produce a mutually agreeable input price.We thank Dennis Weisman and two anonymous referees for very helpful commentsJEL classification: L43, L51, L22 |
