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Empirical Analysis of Countervailing Power in Business-to-Business Bargaining

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  • Walter Beckert

    (Department of Economics, Mathematics & Statistics, Birkbeck)

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    Abstract

    This paper provides a comprehensive econometric framework for the empirical analysis of countervailing power. It encompasses the two main features of pricing schemes in business-to-business relationships: nonlinear price schedules and bargaining over rents. Disentangling them is critical to the empirical identification of countervailing power. Testable predictions from the theoretical analysis for a pragmatic reduced form empirical pricing model are delineated. This model is readily implementable on the basis of transaction data, routinely collected by antitrust authorities and illustrated using data from the UK brick industry. The paper emphasizes the importance of controlling for endogeneity of volumes and established supply chains and for heterogeneity across buyers and sellers due to intrinsically unobservable outside options.

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    File URL: http://www.ems.bbk.ac.uk/research/wp/2011/PDFs/BWPEF1107.pdf
    File Function: First version, 2011
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    Bibliographic Info

    Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 1107.

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    Date of creation: Oct 2011
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    Handle: RePEc:bbk:bbkefp:1107

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    Related research

    Keywords: countervailing power; bargaining; nonlinear prices; transaction panel data countervailing power; bargaining; nonlinear prices; transac¬tion panel data;

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    References

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    1. Monica Giulietti, 2007. "Buyer and seller power in grocery retailing: evidence from Italy," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO.
    2. Michaela Draganska & Daniel Klapper & Sofia B. Villas-Boas, 2010. "A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel," Marketing Science, INFORMS, vol. 29(1), pages 57-74, 01-02.
    3. Bonnet, Céline & Dubois, Pierre, 2009. "Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Nonlinear Pricing and Resale Price Maintenance," IDEI Working Papers 583, Institut d'Économie Industrielle (IDEI), Toulouse.
    4. Smith, Howard & Thanassoulis, John, 2006. "Upstream Competition and Downstream Buyer Power," CEPR Discussion Papers 5803, C.E.P.R. Discussion Papers.
    5. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2004. "Identification and Estimation of Hedonic Models," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S60-S109, February.
    6. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
    7. Christopher M. Snyder, 1996. "A Dynamic Theory of Countervailing Power," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 747-769, Winter.
    8. de Fontenay, Catherine C. & Gans, Joshua S., 2004. "Can vertical integration by a monopsonist harm consumer welfare?," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 821-834, June.
    9. Hart, Sergiu & Mas-Colell, Andreu, 1989. "Potential, Value, and Consistency," Econometrica, Econometric Society, vol. 57(3), pages 589-614, May.
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