We consider a bilateral monopoly with a supplier and a buyer. Their trading terms are determined through negotiations, but affected by the buyer's efforts to search for outside suppliers. We find surprisingly that a market expansion may harm the supplier

This paper examines the role of outside options in a downstream duopoly with exclusive vertical relations as in the Japanese automobile industry. In our setup, the downstream firms have outside options, and two upstream firms with exclusive relations can engage in cost reducing investments. More...