When Do Large Buyers Pay Less? Experimental Evidence
AbstractThe rise in mega-retailers has contributed to a growing literature on buyer power and large-buyer discounts. According to Rotemberg and Saloner (1986) and Snyder (1998), large buyers' ability to obtain price discounts depends on their relative (rather than absolute) size and the degree of competition between suppliers. I test experimentally comparative statics implications of this theory concerning the number of sellers and the sizes of the buyers in the market. The results track the comparative statics predictions to a surprising extent. Subtle changes in the distribution of buyer sizes or the number of suppliers can create or negate large-buyer discounts. The results highlight the previously unexplored role of the demand structure in determining buyer-size discounts. Furthermore, the experiments establish the presence of small-buyer premia, not anticipated by the theory.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 16683.
Date of creation: 06 Aug 2009
Date of revision:
experimental economics; large-buyer discounts; buyer power; seller competition;
Other versions of this item:
- Bradley J. Ruffle, 2013. "When Do Large Buyers Pay Less? Experimental Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 61(1), pages 108-137, 03.
- Bradley J. Ruffle, 2009. "When Do Large Buyers Pay Less? Experimental Evidence," Working Papers 0910, Ben-Gurion University of the Negev, Department of Economics.
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-16 (All new papers)
- NEP-COM-2009-08-16 (Industrial Competition)
- NEP-EXP-2009-08-16 (Experimental Economics)
- NEP-MIC-2009-08-16 (Microeconomics)
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