Hugo Molina (PSAE)
We develop an empirical framework to analyze vertical relationships with manufacturer–retailer bargaining. Our key innovation is the introduction of a novel Nash-in-Nash bargaining model that incorporates uncertainty in retailers’ pricing responses to wholesale prices. This model extends existing Nash-in-Nash frameworks by relaxing assumptions about the timing of wholesale and retail price setting. We show that our model can be micro-founded by a two-stage noncooperative game with delegated negotiations. We propose a two-step strategy that separably identifies bargaining and responsiveness parameters and implies a Generalized Method of Moments estimation procedure. A preliminary application to Dominick’s beer market indicates that the retailer is likely to be responsive in retail pricing, with estimates of the responsiveness parameter close to one.