Empirical Studies of Bargaining and Contracting in Vertical Markets and Bilateral Oligopoly

Industries are rarely perfectly competitive. They also rarely comprise only firms who transact solely with consumers. Rather, in many industries—including health care, technology, media, and financial markets—firms are oligopolistic and negotiate terms of trade with one another across different market segments. Understanding how firms compete and interact in these vertical markets is critical not only for regulatory, innovation and competition policy, but also for anticipating how macroeconomic shocks propagate through these industries and affect welfare. Yet, standard economic theory—generally tailored to settings where firms can unilaterally set prices or are price-takers—has struggled to provide sharp predictions in these more complicated environments where multiple parties have market power.