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Upstream Competition and Downstream Buyer Power

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Author Info
Smith, Howard
Thanassoulis, John

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Abstract

This paper considers buyer power in the presence of upstream competition to supply a homogeneous product. A likely consequence of upstream competition is that each supplier is uncertain of its final output, because it does not know how many downstream buyers will select it as a seller. We present a model where, for this reason, final volumes are uncertain for each seller. We find a new source of buyer power when the surplus function is nonlinear: the event of negotiation with a large buyer increases the seller's expected output, which changes the expected average net surplus from the deal; this increases buyer power when the seller's surplus function is concave (and diminishes it when convex). We explore consequences for welfare, industry productivity, and investment incentives.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5803.

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Date of creation: Aug 2006
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Handle: RePEc:cpr:ceprdp:5803

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Keywords: buyer power;

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  6. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March. [Downloadable!] (restricted)
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  15. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April. [Downloadable!] (restricted)
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  16. Roman Inderst & Greg Shaffer, 2007. "Retail Mergers, Buyer Power and Product Variety," Economic Journal, Royal Economic Society, vol. 117(516), pages 45-67, 01. [Downloadable!] (restricted)
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    • Jonas Björnerstedt & Johan Stennek, 2001. "Bilateral Oligopoly," CIG Working Papers FS IV 01-08, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. George Symeonidis, 2009. "Downstream merger and welfare in a bilateral oligopoly," Economics Discussion Papers 671, University of Essex, Department of Economics. [Downloadable!]
  2. Walter Beckert, 2009. "Empirical analysis of buyer power," CeMMAP working papers CWP17/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  3. Claire Chambolle & Sofia Villas-Boas, 2008. "Buyer Power through Producer's Differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1042, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
    Other versions:
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