CESifo Working Paper No. 1448

Bargaining Power and Equilibrium
Consumption

Abstract

We examine how a shift of bargaining power within households operating in a competitive
market environment affects equilibrium allocation and welfare. If price effects are sufficiently
small, then typically an individual benefits from an increase of bargaining power, necessarily
to the detriment of others. If price effects are drastic the welfare of all household members
moves in the same direction when bargaining power shifts, at the expense (or for the benefit)
of outside consumers. Typically a shift of bargaining power within a set of households also
impacts upon other households. We show that each individual of a sociological group tends to
benefit if he can increase his bargaining power, but suffers if others in his group do the same.

JEL Code: D10, D50, D62, D70.

Keywords: household behavior, bargaining power, local and global changes, price effects,
general equilibrium.

We thank Clive Bell, Martin Hellwig, Benny Moldovanu, Till Requate, participants in the
Southeast Economic Theory Conference at Georgetown University, and seminar audiences in
Basel, Berlin and Heidelberg for helpful comments. Hans Haller gratefully acknowledges the
hospitality of the University of Heidelberg and the financial support of the German Science
Foundation (DFG) through a Mercator professorship.

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