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Buyer Countervailing Power versus Monopoly Power: Evidence from Experimental Posted-Offer Markets

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Author Info
Jim Engle-Warnick () (Nuffield College, Oxford)
Bradley Ruffle () (Dept of Economics, Ben-Gurion University)

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Abstract

Although much research has been devoted to the impact of seller structure on market outcomes, considerably less is known about the influence of buyer structure. We examine the impact of buyer concentration on the pricing of a monopolist. Markets with both two and four buyers achieve prices well below the monopoly price, attaining even competitive levels - sometimes even lower. Moreover, markets with only two buyers show significantly lower prices than those with four buyers. We design an additional pair of treatments to pinpoint the source of this difference. We attribute the lower prices 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 is thus an effective source of countervailing power: even an unregulated monopolist that faces no possible threat of entry may price competitively.

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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2002-W14.

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Length: 27 pages
Date of creation: 01 Apr 2002
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Handle: RePEc:nuf:econwp:0214

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Web page: http://www.nuff.ox.ac.uk/economics/

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Related research
Keywords: strategic buyer behavior buyer concentration monopoly experimental economics

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
L4 - Industrial Organization - - Antitrust Issues and Policies

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References listed on IDEAS
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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. 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. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!]
    Other versions:
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