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Buyer Power and Quality Improvement

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Author Info
Pierpaolo Battigalli
Chiara Fumagalli
Michele Polo

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Abstract

This paper analyses the sources of buyer power and its effect on sellers' investment. We show that a retailer extracts a larger surplus from the negotiation with an upstream manufacturer the more it is essential to the creation of total surplus. In turn, this depends on the rivalry between retailers in the bargaining process. Rivalry increases when the retail market is more fragmented, when the retailers are less differentiated and when decreasing returns to scale in production are larger. The allocation of total surplus a¤ects also the incentives of producers to invest in product quality, an instance of the hold up problem. This not only makes both the supplier and consumers worse o¤, but it may harm also the retailers.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 310.

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Date of creation: 2006
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Handle: RePEc:igi:igierp:310

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  14. Battigalli, Pierpaulo & Fumagalli, Chiara & Polo, Michele, 2006. "Buyer Power and Quality Improvements," CEPR Discussion Papers 5814, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  26. Patrick Rey ; Jeanine Thal ; Thibaud Vergé, 2006. "Slotting Allowances and Conditional Payments," Working Papers 2006-23, Centre de Recherche en Economie et Statistique, revised 2006. [Downloadable!]
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  1. Miklos-Thal, Jeanine & Rey, Patrick & Vergé, Thibaud, 2008. "Buyer Power and Intraband Coordination," IDEI Working Papers 500, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  2. Pierpaolo Battigalli & Chiara Fumagalli & Michele Polo, 2006. "Buyer Power and Quality Improvement," Working Papers 310, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
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