Price competition for service provision with different bargaining abilities

Abstract

Price negotiation still has an important role in business-to-business trades. In the negotiations, the realized price depends on the bargaining power of each firm. Therefore, it is important for consumers to know which firm has weaker bargaining power. Simultaneously, some consumers do not negotiate at all. In the case, they buy goods at the price that firms publicly post. In the sense, two different pricing system, the negotiated price and posted price, consumers exist in trades. In our paper, we also consider that the consumers need to pay their transportation costs. In this setting, we analyze how consumers determine which firm each of them visit, and how the realized price is formed. Our results show that negotiated prices depends on their opponent bargaining powers, but independent from consumers’ transportation costs.