Securing sales to a large buyer can be pivotal to a supplier's decision to produce. While conventional wisdom suggests that being pivotal improves a buyer's bargaining position, the opposite is shown in a multilateral bargaining model. If other buyers' payments fall short of costs, a pivotal buyer must cover the shortfall or forfeit consumption. This affords leverage that the supplier lacks when bargaining with non‐pivotal buyers. The analysis illuminates contracting in markets with high fixed costs, such as cable television programming, motion pictures, and large‐scale project finance, and has implications for the FCC's horizontal ownership limits on cable system operators.
The Journal of Industrial Economics – Wiley
Published: Dec 1, 2003
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