Buyer Concentration As A Source Of Countervailing Power: Evidence From Experimental Posted-Offer Markets
AbstractWe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2006-12.
Length: 31 pages
Date of creation: Sep 2006
Date of revision:
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-23 (All new papers)
- NEP-COM-2006-09-23 (Industrial Competition)
- NEP-EXP-2006-09-23 (Experimental Economics)
- NEP-MIC-2006-09-23 (Microeconomics)
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.:
- Dufwenberg, M. & Gneezy, U., 1998.
"Price Competition and Market COncentration: An Experimental Study,"
1998-08, Uppsala - Working Paper Series.
- Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January.
- Dufwenberg, M. & Gneezy, U., 1998. "Price competition and market concentration: An experimental study," Discussion Paper 1998-27, Tilburg University, Center for Economic Research.
- Dufwenberg, Martin & Gneezy, Uri, 1998. "Price Competition and Market Concentration: An Experimental Study," Working Paper Series 1998:8, Uppsala University, Department of Economics.
- Dufwenberg, Martin & Gneezy, Uri, 1999. "Price Competition and Market Concentration: An experimental Study," Research Papers in Economics 1999:4, Stockholm University, Department of Economics.
- 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.
- Hans Normann, Bradley Ruffle and Christopher Snyder, 2004. "Do Buyer-Size Discounts Depend on the Curvature of the Surplus Function? Experimental Tests of Bargaining Models," Royal Holloway, University of London: Discussion Papers in Economics 04/01, Department of Economics, Royal Holloway University of London, revised Apr 2004.
- Hans-Theo Normann & Bradley J. Ruffle & Christopher M. Sndyer, 2003. "Do Buyer-Size Discounts Depend on the Curvature of the Surplus Function? Experimental Tests of Bargaining Models," Experimental 0308001, EconWPA.
- Davis, Douglas D. & Wilson, Bart J., 2008.
"Strategic buyers, horizontal mergers and synergies: An experimental investigation,"
International Journal of Industrial Organization,
Elsevier, vol. 26(3), pages 643-661, May.
- Douglas D. Davis & Bart J. Wilson, 2006. "Strategic Buyers, Horizontal Mergers and Synergies: An Experimental Investigation," Working Papers 0601, VCU School of Business, Department of Economics.
- Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
- Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
- Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001.
"Two are Few and Four are Many: Number Effects in Experimental Oligopolies,"
Bonn Econ Discussion Papers
bgse12_2001, University of Bonn, Germany.
- Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
- Charles J. Thomas & Bart J. Wilson, 2002. "A Comparison of Auctions and Multilateral Negotiations," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 140-155, Spring.
- Coursey, Don & Isaac, R Mark & Smith, Vernon L, 1984. "Natural Monopoly and Contested Markets: Some Experimental Results," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 91-113, April.
- Davis, Douglas D. & Holt, Charles A., 2008.
"The Exercise of Market Power in Laboratory Experiments,"
Handbook of Experimental Economics Results,
- Holt, Charles A, 1989. "The Exercise of Market Power in Laboratory Experiments," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages S107-30, October.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Mestelman, Stuart & Welland, Douglas, 1988. "Advance Production in Experimental Markets," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 641-54, October.
- von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
- Cason, Timothy N. & Williams, Arlington W., 1990. "Competitive equilibrium convergence in a posted-offer market with extreme earnings inequities," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 331-352, December.
- 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.
- Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
- Stiglitz, Joseph E, 1987. "Competition and the Number of Firms in a Market: Are Duopolies More Competitive than Atomistic Markets?," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1041-61, October.
- Plott, Charles R & Smith, Vernon L, 1978.
"An Experimental Examination of Two Exchange Institutions,"
Review of Economic Studies,
Wiley Blackwell, vol. 45(1), pages 133-53, February.
- Plott, Charles R. & Smith, Vernon L., . "An Experimental Examination of Two Exchange Institutions," Working Papers 83, California Institute of Technology, Division of the Humanities and Social Sciences.
- Bradley J. Ruffle, 2000. "Some factors affecting demand withholding in posted-offer markets," Economic Theory, Springer, vol. 16(3), pages 529-544.
- Cason, Timothy N. & Friedman, Daniel & Milam, Garrett H., 2003. "Bargaining versus posted price competition in customer markets," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 223-251, February.
- 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.
- Konrad, K.A. & Morath, F. & Müller, W., 2010.
"Taxation and Market Power,"
2010-03, Tilburg University, Center for Economic Research.
- Kai A. Konrad & Florian Morath & Wieland Müller, 2009. "Taxation and Market Power," CESifo Working Paper Series 2880, CESifo Group Munich.
- Konrad, Kai A. & Morath, Florian & Müller, Wieland, 2010. "Taxation and market power," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2010-07, Social Science Research Center Berlin (WZB).
- Lisa Bruttel, 2014. "Buyer power in large buyer groups?," TWI Research Paper Series 92, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
- 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.
- Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.
- Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shama Rangwala) The email address of this maintainer does not seem to be valid anymore. Please ask Shama Rangwala to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.