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Kaupendamáttur á sementsmarkaði
[Buyer power in the cement industry]

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  • Baldursson, Fridrik M.
  • Johannesson, Sigurdur

Abstract

The Icelandic Competition Council recently ruled that a cement supplier with 75% market share is not dominant. The ruling was based on countervailing power of local concrete producers. To test the economic arguments for the ruling, we present a simplified bilateral oligopoly model of the in¬dustry where a new supplier enters a market competing with an incumbent. We show that it may be rational for buyers, given that some buying firms have switched to an entrant, to stay with a less efficient incumbent. Contracts negotiated with the incumbent are not as advantageous as those the entrant offers, but better than those that would prevail in monopoly of the entrant. This supports the aforementioned ruling.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14742.

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Date of creation: 2005
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Handle: RePEc:pra:mprapa:14742

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Related research

Keywords: Bilateral Oligopoly; Countervailing Power; Cement Industry;

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References

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  1. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 98(391), pages 484-97, June.
  2. Jim Engle-Warnick & Bradley Ruffle, 2002. "Buyer Countervailing Power versus Monopoly Power: Evidence from Experimental Posted-Offer Markets," Economics Papers 2002-W14, Economics Group, Nuffield College, University of Oxford.
  3. Sara Fisher Ellison & Christopher M. Snyder, 2010. "COUNTERVAILING POWER IN WHOLESALE PHARMACEUTICALS -super-* ," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 58(1), pages 32-53, 03.
  4. Christopher M. Snyder, 1996. "A Dynamic Theory of Countervailing Power," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 747-769, Winter.
  5. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
  6. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 195-222, March.
  7. Snyder, Christopher M., 1998. "Why do larger buyers pay lower prices? Intense supplier competition," Economics Letters, Elsevier, Elsevier, vol. 58(2), pages 205-209, February.
  8. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
  9. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, Econometric Society, vol. 21(1), pages 128-140, April.
  10. Chen, Zhiqi, 2003. " Dominant Retailers and the Countervailing-Power Hypothesis," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 612-25, Winter.
  11. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(441), pages 418-30, March.
  12. Tasneem Chipty & Christopher M. Snyder, 1999. "The Role Of Firm Size In Bilateral Bargaining: A Study Of The Cable Television Industry," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 326-340, May.
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