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 | Dauphine, A409 |
Multiproduct business-to-business negotiations
We analyze business-to-business negotiations between a multi-product supplier and a retailer. Major suppliers, such as the Coca-Cola Company and Procter & Gamble, typically offer a range of products to retailers. Among these, some products can only be bought from the supplier (must-stock products), while for others there exist viable alternatives (outside options). We consider a bilateral bargaining framework where a supplier and a retailer negotiate wholesale prices for two products. The retailer has the potential to leverage an outside option for one product, for instance by introducing a private label. Unlike the scenario involving a single-product supplier, we find that the distribution of bargaining weights influences wholesale prices even when the outside option is binding. Surprisingly, our findings reveal that, all else being equal, the wholesale prices for the two products are identical, despite the outside option applying to only one of them. Additionally, we demonstrate that the retailer's gains from threatening to use its outside option diminish as its own bargaining weight increases. Unlike negotiations involving a single product, we demonstrate that it can be crucial for the supplier to specify both wholesale prices and quantities in the contract with the retailer.
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