The countervailing power hypothesis and contingent contracts

We consider a downstream oligopoly model with one dominant and several fringe retailers who purchase a manufacturing product from a monopoly supplier. We examine how contract type influences the relationship between the dominant retailer's bargaining power and the equilibrium retail price. If the contracts between the supplier and fringe retailers are contingent on the bargaining outcome between the supplier and the dominant retailer, the bargaining power does not affect the retail price. In contrast, if contracts with fringe retailers are not contingent, the relationship between bargaining power and retail price can be either positive or negative.