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Upstream Competition and Downstream Buyer Power

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  • Smith, Howard
  • Thanassoulis, John

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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Bibliographic Info

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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References

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  1. Inderst, Roman & Wey, Christian, 2003. " Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 1-19, Spring.
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Citations

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Cited by:
  1. Chambolle, Claire & Villas-Boas, Sofia B, 2008. "Buyer Power through Producer's Differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7b93w47c, Department of Agricultural & Resource Economics, UC Berkeley.
  2. George Symeonidis, 2009. "Downstream merger and welfare in a bilateral oligopoly," Economics Discussion Papers 671, University of Essex, Department of Economics.
  3. Walter Beckert, 2011. "Empirical analysis of countervailing power in business-to-business bargaining," CeMMAP working papers CWP32/11, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  4. Walter Beckert, 2011. "Empirical Analysis of Countervailing Power in Business-to-Business Bargaining," Birkbeck Working Papers in Economics and Finance 1107, Birkbeck, Department of Economics, Mathematics & Statistics.
  5. Allain, Marie-Laure & Henry, Emeric & Kyle, Margaret K, 2011. "Inefficiencies in technology transfer: theory and empirics," CEPR Discussion Papers 8206, C.E.P.R. Discussion Papers.
  6. Reisinger, Markus & Schnitzer, Monika E, 2008. "A Model of Vertical Oligopolistic Competition," Department of Economics, Working Paper Series qt3n9000fg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. Marie-Laure Allain & Emeric Henry & Margaret Kyle, 2011. "Inefficiencies in the sale of ideas: theory and empirics," Working Papers hal-00639128, HAL.
  8. Walter Beckert, 2009. "Empirical analysis of buyer power," CeMMAP working papers CWP17/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  9. Dobson, Paul W. & Waterson, Michael, 2007. "The competition effects of industry-wide vertical price fixing in bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 935-962, October.

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