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Buyer Concentration As A Source Of Countervailing Power: Evidence From Experimental Posted-Offer Markets

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  • Jim Engle-Warnick

    ()

  • Bradley Ruffle

    ()

Abstract

We experimentally examine the impact of buyer concentration on the pricing of a monopolist. In our experimental markets, a monopolist faces either two or four buyers. Markets with two buyers achieve significantly lower prices, sometimes below competitive levels, than those with four buyers. We design an additional pair of treatments to pinpoint the source of this difference. We attribute the lower pries in the two-buyer treatment to the monopolist pricing more cautiously when there are fewer buyers in order to avoid costly losses in sales. Buyer concentration may thus be an elective source of countervailing power.

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Bibliographic Info

Paper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2006-12.

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Length: 31 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:mcl:mclwop:2006-12

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  1. Dufwenberg, M. & Gneezy, U., 1998. "Price Competition and Market COncentration: An Experimental Study," Papers 1998-08, Uppsala - Working Paper Series.
  2. Hans-Theo Normann & Bradley J. Ruffle & Christopher M. Snyder, 2007. "Do buyer-size discounts depend on the curvature of the surplus function? Experimental tests of bargaining models," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 747-767, 09.
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  9. Davis, Douglas D. & Holt, Charles A., 2008. "The Exercise of Market Power in Laboratory Experiments," Handbook of Experimental Economics Results, Elsevier.
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  14. Davis, Douglas D & Williams, Arlington W, 1991. "The Hayek Hypothesis in Experimental Auctions: Institutional Effects and Market Power," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 261-74, April.
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Citations

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Cited by:
  1. Jim Engle-Warnick & Bradley Ruffle, 2006. "The Strategies Behind Their Actions: A Method To Infer Repeated-Game Strategies And An Application To Buyer Behavior," Departmental Working Papers 2005-04, McGill University, Department of Economics.
  2. Konrad, K.A. & Morath, F. & Müller, W., 2010. "Taxation and Market Power," Discussion Paper 2010-03, Tilburg University, Center for Economic Research.
  3. Lisa Bruttel, 2014. "Buyer power in large buyer groups?," TWI Research Paper Series 92, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  4. Sanjib Bhuyan, 2008. "Clarke, Roger, Stephen Davies, Paul Dobson & Michael Waterson. Buyer Power and Competition in European Food Retailing . Cheltenham (UK): Edward Elgar, 2002. xi+203 pp, ISBN 1-84064-685-3, $75," Agribusiness, John Wiley & Sons, Ltd., vol. 24(1), pages 141-143.
  5. Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.
  6. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.

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