Quantifying Bargaining Power Under Incomplete Information: A Supply-Side Analysis of the Used-Car Industry

This study quantifies bargaining power in supply-side negotiations with incomplete information, where car dealers negotiate inventory prices with large sellers at wholesale used-car auctions. We measure an agent’s bargaining power in an incomplete-information setting as the fraction of the agent’s take-it-or-leave-it-offer payoff she receives. We propose a direct-mechanism method for estimating a seller’s private value, interpreting it as the gradient of a menu from which the seller chooses her secret reserve price. We find that, on average, dealerships (buyers) have a similar degree of bargaining power as sellers. For manufacturer sellers, or sales with substantial buyer competition, sellers’ bargaining power is much higher.