Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/338316 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12026
Version Description: 
This Version: December 2025
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
This article bridges monopoly, monopsony, and countervailing power theories to analyze their welfare implications in a vertical supply chain. We develop a bilateral monopoly model with bargaining that accommodates upstream monopsony and downstream monopoly power. In equilibrium, the ''short-side rule'' applies: the quantity exchanged is determined by the firm willing to trade less. Welfare is maximized when each firm's bargaining power exactly countervails the other's market power. Otherwise, double marginalization arises in the form of double markdownization under excessive downstream bargaining power, or double markupization under excessive upstream bargaining power. We offer novel insights for price regulation (e.g., price floors) and competition policy.
Subjects: 
markups
markdowns
bargaining
countervailing buyer power
monopsony power
bilateral monopoly
JEL: 
C78
D42
J42
Document Type: 
Working Paper
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