Bargaining Ability and Competitive Advantage: Empirical Evidence from Medical Devices

Abstract

I n markets where buyers and suppliers negotiate, supplier costs, buyer willingness to pay, and competition determine only a range of potential prices, leaving the final price dependent on other factors (e.g., negotiating skill), which I call bargaining ability. I use a model of buyer demand and buyer-supplier bargaining, combined with detailed data on prices and quantities at the buyer-supplier relationship level, to estimate firm-bargaining abilities in the context of the coronary stent industry where different hospitals (buyers) pay different prices for the exact same product from the same supplier. I estimate that (1) variation in bargaining abilities explains 79% of this price variation, (2) bargaining ability has a large firm-specific component, and (3) changes in the distribution of bargaining abilities over time suggest learning as an important channel influencing bargaining ability.Data, as supplemental material, are available at http://dx.

Multi-criteria decision analysis for supporting the selection of medical devices under uncertainty

“…The issue of MDs purchasing is very important and calls for much attention (World Health Organization, 2010). Work to formalise the process of controlling MDs is underway (Cruz, Haugan, & Rincon, 2014;Grennan, 2014;Pecchia et al, 2013). MDs' methods of purchase stand out significantly in the set of controlling tasks (Brown, Smale, & Wong, 2006).…”

On the Empirical Content of Cheap-Talk Signaling: An Application to Bargaining

“…Our work also contributes to two separate strands of the literature that specifically shed light on bargaining and negotiation. The first of these is a growing literature in Industrial Organization on the empirics of bargaining and negotiation (Ambrus et al, 2014;Bagwell et al, 2014;Grennan, 2013Grennan, , 2014Larsen, 2014;Shelegia and Sherman, 2015). We contribute to this literature by documenting the important role of cheap-talk signaling as a framework for understanding the relationship between "negotiation", i.e.…”

Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining

“…However, we observe substantial dispersion in prices even conditional on facility size and purchase volume; see Appendix A.1 for details. In a different data set, Grennan (2013Grennan ( , 2014 found evidence that heterogeneity in stent prices across hospitals could be explained in part by heterogeneity in physician brand loyalty, but this left a large residual heterogeneity in hospital-product bargaining ability. 10 Our analysis explores the possibility that part of this heterogeneity in bargaining abilities may be due to heterogeneity in information among hospitals, and that transparency in the form of benchmarking information on other hospitals' prices might affect this.…”

“…However, the mechanisms via which information impacts consumer goods may not extend to business-to-business markets where there is often no search across sellers (when products are purchased directly from manufacturers), and negotiators are professionals employed by firms and thus with different expertise and incentives than the typical consumer. Recent empirical research in business-to-business bargaining (Draganksa et al 2009;Crawford and Yurukoglu 2012;Grennan 2013Grennan , 2014Gowrisankaran et al 2015; Lewis and Pflum 2015; Ho and Lee 2017) explains variation in prices across buyers using full information models, but in doing so also documents substantial heterogeneity in bargaining ability parameters, which could include variation in information available to negotiators. 3 Our work contributes to these literatures by extending our understanding of transparency to the business-to-business setting and by offering information as one explanation for the large unexplained heterogeneity documented in negotiated prices.…”