Revision of industrial supply conditions and game theory

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,...

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Bibliographic Details
Published in:International journal of production economics 1997-03, Vol.49 (1), p.17-28
Main Authors: Gallo, Paolo, Luciano, Elisa, Peccati, Lorenzo
Format: Article
Language:English
Subjects:
Bargaining
Bilateral monopoly
Economic models
Game theory
Mathematical programming
Monopolies
Nonlinear pricing
Pricing policies
Studies
Supply
Von Stackelberg games
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Summary: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 price-quantity 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.
ISSN:0925-5273
1873-7579
DOI:10.1016/S0925-5273(96)00119-3