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

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  • Jim Engle-Warnick
  • Bradley J Ruffle

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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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2002-W14.

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Date of creation: 01 Apr 2002
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Handle: RePEc:oxf:wpaper:2002-w14

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Keywords: strategic buyer behaviour; buyer concentration; monopoly; experimental economics;

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References

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Citations

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Cited by:
  1. Baldursson, Fridrik M. & Johannesson, Sigurdur, 2005. "Kaupendamáttur á sementsmarkaði
    [Buyer power in the cement industry]
    ," MPRA Paper 14742, University Library of Munich, Germany.
  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.
  3. 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.
  4. Productivity Commission, 2005. "Review of Part X of the Trade Practices Act 1974: International Liner Cargo Shipping," Inquiry Reports, Productivity Commission, Government of Australia, number 32.

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