Abstract
This paper develops a model of exchange between a single buyer and seller with simultaneous non-cooperative choices of a mark-up and a mark-down. These choices arise as optimal responses to uncertainty, if strategic and sales decisions are separate functions within the fi rm. There are multiple Pareto-ranked equilibria. In an interior equilibrium the amount traded equates marginal expenditure and marginal revenue, and the market power of each party depends on the relative slope of marginal value and marginal cost. If unit production cost is constant, the outcome is the same as in the Spengler-Stackelberg analysis of vertically related rms, whose assumption of upstream market power is thereby rationalized.