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Price Setting is Popular among Firms: Will It Persist in Vertical
Relationships with Market Uncertainty?


Gianpaolo Rossini*

University of Bologna



Price setting is popular among firms selling to consumers driven in their buying decisions mostly by price signals since they take for granted availability of goods. Is this enterprise behaviour justified when production is vertically organized along several stages? We consider two different market strategies, price setting and quantity setting and two different vertical relationships: a non symmetric (imperfectly) competitive one and a cooperative one based on a bargaining among vertical sections of production. In the first scenario, with certainty, price and quantity settings are alike, while with uncertainty quantity setting is preferred by firms. With bargaining and quantity setting, uncertainty leads to an asymmetric distribution of gains along the vertical chain of production. [JEL Classification: L1]



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* gianpaolo.rossini@unibo.it - Department of Economics

The Author thanks Luca Lambertini for his comments and suggestions, while taking full responsibility for the content of this chapter. Moreover,  the Author gratefully acknowledges the financial support of the University of Bologna under the 60% scheme for the a.y. 2006-7 and the financial support of the Italian Ministry of Education within the 40% scheme for the a.y. 2006-7.
  design:faronet     
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