In this article I develop a model of an infinitely repeated procurement auction with one buyer and several sellers. The buyer can accumulate a backlog of unfilled orders which, similar to a boom in demand, forces the sellers t o collude on a low price to prevent undercutting. If the buyer's cost of shifting its consumption over time is low enough, then the extent of collusion is bounded away from the joint-profit-maximizing level even for discount factors approaching one. The model is extended to allow for multiple buyers. Large buyers are shown to obtain lower prices from the sellers. Buyer mergers increase profit for all buyers, not just the merging pair, at the expense of the sellers. In contrast, buyer growth through addition harms buyers that do not grow and benefits sellers.
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Volume (Year): 27 (1996) Issue (Month): 4 (Winter) Pages: 747-769 Download reference. The following formats are available: HTML
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Pierpaolo Battigalli & Chiara Fumagalli & Michele Polo, 2006.
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310, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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Other versions:
Roman Inderst & Christian Wey, 2003.
"Buyer Power and Supplier Incentives,"
CIG Working Papers
SP II 2003-05, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
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Other versions:
Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003.
"The Economics of Tacit Collusion,"
IDEI Working Papers
186, Institut d'Économie Industrielle (IDEI), Toulouse.
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