Direct Sales and Bargaining

Donna, Javier D. and Pereira, Pedro and Pu, Yun and Trindade, Andre and Yoshida, Renan C. (2023): Direct Sales and Bargaining.

Abstract

Cutting out the intermediary and selling directly to consumers is an increasingly common strategy by manufacturers. We develop a structural model of vertical relations where manufacturers bargain with retailers and sell their products directly to consumers. Direct sales generate potential consumer gains due to additional competition and product variety but also increase manufacturers’ bargaining leverage, thereby increasing upstream and downstream prices and potentially reducing consumer welfare. We estimate the model using data from the outdoor advertising industry to quantify the bargaining-leverage and welfare effects of direct sales. We discuss the relevance of the bargaining-leverage effect for vertical merger evaluation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Direct-to-consumer sales, bargaining, vertical mergers, double marginalization, advertising
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L4 - Antitrust Issues and Policies > L42 - Vertical Restraints ; Resale Price Maintenance ; Quantity Discounts; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation; L - Industrial Organization > L8 - Industry Studies: Services > L81 - Retail and Wholesale Trade ; e-Commerce; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M37 - Advertising

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