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Pivotal Buyers and Bargaining Position

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  • Alexander Raskovich
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    Abstract

    Securing sales to a large buyer can be pivotal to a supplier's decision to produce. While conventional wisdom suggests that being pivotal improves a buyer's bargaining position, the opposite is shown in a multilateral bargaining model. If other buyers' payments fall short of costs, a pivotal buyer must cover the shortfall or forfeit consumption. This affords leverage that the supplier lacks when bargaining with non-pivotal buyers. The analysis illuminates contracting in markets with high fixed costs, such as cable television programming, motion pictures, and large-scale project finance, and has implications for the FCC's horizontal ownership limits on cable system operators. Copyright Blackwell Publishing Ltd. 2003.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

    Volume (Year): 51 (2003)
    Issue (Month): 4 (December)
    Pages: 405-426

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    Handle: RePEc:bla:jindec:v:51:y:2003:i:4:p:405-426

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    Cited by:
    1. Bombardini, Matilde & Trebbi, Francesco, 2011. "Votes or money? Theory and evidence from the US Congress," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 587-611, August.
    2. Dennis Carlton & Mark Israel, 2011. "Proper Treatment of Buyer Power in Merger Review," Review of Industrial Organization, Springer, vol. 39(1), pages 127-136, August.
    3. Bragelien, Iver & Impink, Joost, 2014. "Relationship-Specificity, Bargaining Power Growth, and Firm Performance," Discussion Papers 2014/4, Department of Business and Management Science, Norwegian School of Economics.
    4. Alderighi, Marco, 2007. "The role of buying consortia among SMEs in the electricity market in Italy," Energy Policy, Elsevier, vol. 35(6), pages 3463-3472, June.
    5. David Mills, 2013. "Countervailing Power and Chain Stores," Review of Industrial Organization, Springer, vol. 42(3), pages 281-295, May.
    6. Chiara Fumagalli & Massimo Motta, 2006. "Buyers’ miscoordination, entry, and downstream competition," CSEF Working Papers 152, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    7. Adilov, Nodir & Alexander, Peter J., 2006. "Horizontal merger: Pivotal buyers and bargaining power," Economics Letters, Elsevier, vol. 91(3), pages 307-311, June.
    8. Inderst, Roman & Shaffer, Greg, 2011. "Wholesale Price Determination Under the Threat of Demand-Side Substitution," MPRA Paper 53843, University Library of Munich, Germany.
    9. Pierpaolo Battigalli & Chiara Fumagalli & Michele Polo, 2006. "Buyer Power and Quality Improvement," Working Papers 310, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    10. Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.
    11. Darius Lakdawalla & Wesley Yin, 2009. "Insurer Bargaining and Negotiated Drug Prices in Medicare Part D," NBER Working Papers 15330, National Bureau of Economic Research, Inc.
    12. Raskovich, Alexander, 2007. "Competition or collusion? Negotiating discounts off posted prices," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 341-354, April.
    13. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
    14. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-85, April.
    15. Stephane Caprice & Vanessa von Schlippenbach, 2008. "Competition policy in a concentrated and globalized retail industry," Working Papers 23775, Institut National de la Recherche Agronomique, France.
    16. Johansen, Bjørn Olav, 2012. "The Buyer Power Of Multiproduct Retailers: Competition With One-Stop Shopping," Working Papers in Economics 03/12, University of Bergen, Department of Economics.
    17. Raskovich, Alexander, 2007. "Retail buyer power through steering," Economics Letters, Elsevier, vol. 96(2), pages 221-225, August.
    18. Roig, Guillem, 2014. "What Determines Market Structure? An Explanation from Cooperative Investment with Non‐Exclusive Co," TSE Working Papers 14-482, Toulouse School of Economics (TSE).

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