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Upstream Competition and Downstream Buyer Power

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  • Howard Smith
  • John Thanassoulis

Abstract

It is often claimed that large buyers wield buyer power.� Existing theories of this effect generally assume upstream monopoly.� Yet the evidence is strongest with upstream competition.� We show that upstream competition can yield buyer power for large buyers by generating supplier-level volume uncertainty - a feature that emerges from case study evidence of upstream competition - so the negotiated price depends on the seller's cost expectation.� By analyzing the effect of market structure changes on seller cost expectations the paper gives insights on three key policy-relevant questions around buyer power: (i) who wields it and under what circumstances (ii) does a downstream merger alter the buyer power of other buyers (so-called waterbed effects); and (iii) how are the incentives to invest in upstream technology altered by the creation of large downstream firms?

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 420.

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Date of creation: 01 Jan 2009
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Handle: RePEc:oxf:wpaper:420

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Keywords: Buyer power; Waterbed effects; Bargaining in the supply chain; Milk; Private-Label; Supermarkets;

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References

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Citations

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Cited by:
  1. Allain, Marie-Laure & Henry, Emeric & Kyle, Margaret K, 2011. "Inefficiencies in technology transfer: theory and empirics," CEPR Discussion Papers 8206, C.E.P.R. Discussion Papers.
  2. Walter Beckert, 2009. "Empirical analysis of buyer power," CeMMAP working papers CWP17/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  3. Chambolle, Claire & Villas-Boas, Sofia B, 2008. "Buyer Power through Producer's Differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7b93w47c, Department of Agricultural & Resource Economics, UC Berkeley.
  4. Reisinger, Markus & Schnitzer, Monika, 2008. "A Model of Vertical Oligopolistic Competition," Discussion Papers in Economics 3189, University of Munich, Department of Economics.
  5. Walter Beckert, 2011. "Empirical analysis of countervailing power in business-to-business bargaining," CeMMAP working papers CWP32/11, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. Walter Beckert, 2011. "Empirical Analysis of Countervailing Power in Business-to-Business Bargaining," Birkbeck Working Papers in Economics and Finance 1107, Birkbeck, Department of Economics, Mathematics & Statistics.
  7. Dobson, Paul W. & Waterson, Michael, 2007. "The competition effects of industry-wide vertical price fixing in bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 935-962, October.
  8. Marie-Laure Allain & Emeric Henry & Margaret Kyle, 2011. "Inefficiencies in the sale of ideas: theory and empirics," Working Papers hal-00639128, HAL.
  9. Symeonidis, George, 2010. "Downstream merger and welfare in a bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 230-243, May.

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