We analyze the real case of two firms evaluating a shift from a “risk and revenue sharing agreement” to a supplying agreement. From the point of view of economic theory, this is a constrained bilateral monopoly problem. At the first stage, the two firms take sequential decisions of price and demand, with price being represented not only as a simple level, but also as a more realistic price schedule. In this more general case we solve a variational problem by transforming it - with no restrictions - into a classical mathematical programming one. At the second stage, the two firms are allowed to bargain over a couple priceguantity instead of taking separate decisions about them. As expected, bargaining is efficient with respect to the constant price case. In the price schedule case however efficiency does not hold without further conditions.
Revision of Industrial Supply Conditions and Game Theory
PECCATI, LORENZO;LUCIANO, ELISA;
1997
Abstract
We analyze the real case of two firms evaluating a shift from a “risk and revenue sharing agreement” to a supplying agreement. From the point of view of economic theory, this is a constrained bilateral monopoly problem. At the first stage, the two firms take sequential decisions of price and demand, with price being represented not only as a simple level, but also as a more realistic price schedule. In this more general case we solve a variational problem by transforming it - with no restrictions - into a classical mathematical programming one. At the second stage, the two firms are allowed to bargain over a couple priceguantity instead of taking separate decisions about them. As expected, bargaining is efficient with respect to the constant price case. In the price schedule case however efficiency does not hold without further conditions.
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