Search and Bargaining in the Product Market and Price Rigidities

  • Mirko Abbrittiy, Tommaso Traniz, +8 authors Tommaso Trani
  • Published 2015

Abstract

This paper develops a model of pricing dynamics in business to business relationships. The formation of business relationships is a process of search and matching between retailers and wholesalers in the product market. The size of each transaction and the related price are set through bilateral bargaining. There are three key factors that in‡uence the reaction of prices and quantities to cost shocks: the persistence of the shocks, the adjustment of …nal goods production and the search externalities. These factors determine how …rms adjust, whether through the intensive margin, through the extensive margin or through both. Based on this, we assess to what extent wholesale prices a¤ect the allocation of consumption in closed economy and deliver expenditure switching in open economy. JEL classi…cation: D4, E23, E3, F4 Keywords: price bargaining, industry dynamics, margins of adjustment, pass-through We thank Charles Wyplosz, Cédric Tille, Pierpaolo Benigno, Andreas Mueller, Angel Luis Lopez, Antonio Moreno, Josè Enrique Galdon, Mikel Casares and Luigi Paciello for very helpful comments and suggestions on previous versions of the paper. We are also grateful to the seminar and conference participants of the 9th "Workshop on Macroeconomic Dynamics: Theory and Policy", the 2011 CEF in San Francisco and the 2012 RES Meeting in Cambridge. Moreover, we gratefully acknowledge the insightful discussions with Sebastian Weber, Pascal Towbin and Markus Kinateder. All remaining errors are exclusively ours. The authors are …nally grateful to the Spanish Ministry of Education for …nancial support (grant ECO2012-34595). yDepartment of Economics, Universidad de Navarra. Address: Campus Universitario, Edi…cio Amigos, 31009 Pamplona, Spain. E-mail: mabbritti@unav.es. zDepartment of Economics, Universidad de Navarra. Address: Campus Universitario, Edi…cio Amigos, 31009 Pamplona, Spain. E-mail: ttrani@unav.es. MACROECON & INT'L FINANCE WORKSHOP presented by Tommaso Trani FRIDAY, April 3, 2015 3:30 pm – 5:00 pm, Room: HOH-706

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Cite this paper

@inproceedings{Abbrittiy2015SearchAB, title={Search and Bargaining in the Product Market and Price Rigidities}, author={Mirko Abbrittiy and Tommaso Traniz and C{\'e}dric Tille and Pierpaolo Benigno and Andreas M{\"{u}ller and {\'A}ngel Luis L{\'o}pez and Enrique Galdon and Mikel Casares and Sebastian Weber and Pascal Towbin and Tommaso Trani}, year={2015} }