Bilateral Oligopoly – The Efficiency of Intermediate Goods Markets

Reprint No. 2007:24

Author(s): Jonas Björnerstedt, and Johan StennekYear: 2007 Title: International Journal of Industrial Organization Volume (No.): 25 (5) Pages: 884–907

We show that intermediate goods markets may be efficient, despite the presence of commonly accepted signs of market failure, such as high concentration (both among sellers and buyers), sparse trading networks, price dispersion and externalities. The results are derived in an extensive form model of bilateral bargaining with multiple buyers and multiple sellers, and with externalities between the negotiations. We also characterize the structure of the endogenous trading network, i.e., how firms choose trading partners. Prices are dispersed and depend on both the concentration of capital and the concentration of sales, consistent with some stylized facts on buyer power.

Björnerstedt, Jonas and Johan Stennek (2007), "Bilateral Oligopoly – The Efficiency of Intermediate Goods Markets". International Journal of Industrial Organization 25(5), 884–907.

Interdisciplinary European Studies

The European Union in a Changing World Order


This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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