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Buyers’ miscoordination, entry, and downstream competition

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Author Info
Chiara Fumagalli () (Università Luigi Bocconi and CSEF)
Massimo Motta () (European University Institute, Universitat Pompeu Fabra and CEPR)

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Abstract

This paper shows that buyers’ coordination failures might prevent entry in an industry with an incumbent firm and a more efficient potential entrant. If there was a single buyer, or if all buyers formed a central purchasing agency, coordination failures would be avoided and efficient entry would always occur. More generally, exclusion is the less likely the lower the number of buyers. For any given number of buyers, exclusion is the less likely the more fiercely buyers compete in the downstream market. First, intense competition may prevent miscoordination equilibria from arising; second, in cases where miscoordination equilibria still exist, it lowers the maximum price that the incumbent can sustain at such exclusionary equilibria

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 152.

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Date of creation: 01 Jan 2006
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Publication status: Published in The Economic Journal, 118(531), pp. 1196-1222, August 2008
Handle: RePEc:sef:csefwp:152

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Related research
Keywords: Countervailing Power; Exclusion; Buyers’ Fragmentation;

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Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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References listed on IDEAS
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. Ilya R. Segal & Michael D. Whinston, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March. [Downloadable!] (restricted)
  2. Fumagalli, Chiara & Motta, Massimo, 2002. "Exclusive Dealing and Entry, when Buyers Compete," CEPR Discussion Papers 3493, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-45, December. [Downloadable!] (restricted)
  4. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-97, June. [Downloadable!] (restricted)
    Other versions:
  5. Stephen Morris & Hyun S Shin, 2001. "Global Games: Theory and Applications," Levine's Working Paper Archive 122247000000001080, David K. Levine. [Downloadable!]
    Other versions:
  6. Katz, Michael L, 1987. "The Welfare Effects of Third-Degree Price Discrimination in," American Economic Review, American Economic Association, vol. 77(1), pages 154-67, March. [Downloadable!] (restricted)
  7. Suchan Chae & Paul Heidhues, 2004. "Buyers' Alliances for Bargaining Power," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 13(4), pages 731-754, December. [Downloadable!] (restricted)
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  8. von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June. [Downloadable!] (restricted)
  9. Inderst, Roman & Wey, Christian, 2005. "How Strong Buyers Spur Upstream Innovation," CEPR Discussion Papers 5365, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Christopher M. Snyder, 1996. "A Dynamic Theory of Countervailing Power," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 747-769, Winter. [Downloadable!] (restricted)
  11. Alexander Raskovich, 2003. "Pivotal Buyers and Bargaining Position," Journal of Industrial Economics, Blackwell Publishing, vol. 51(4), pages 405-426, December. [Downloadable!] (restricted)
  12. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR, CES, MSH, vol. 14(28), pages 133-164, 04. [Downloadable!] (restricted)
  13. Chen, Zhiqi, 2003. " Dominant Retailers and the Countervailing-Power Hypothesis," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 612-25, Winter.
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  14. 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. [Downloadable!] (restricted)
  15. Tyagi, Rajeev K, 2001. "Why Do Suppliers Charge Larger Buyers Lower Prices?," Journal of Industrial Economics, Blackwell Publishing, vol. 49(1), pages 45-61, March. [Downloadable!] (restricted)
  16. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March. [Downloadable!] (restricted)
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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. Ryoko Oki & Noriyuki Yanagawa, 2009. "Exclusive Dealing and Large Distributors," CIRJE F-Series CIRJE-F-626, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  2. Battigalli, Pierpaulo & Fumagalli, Chiara & Polo, Michele, 2006. "Buyer Power and Quality Improvements," CEPR Discussion Papers 5814, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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