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Buyers’ miscoordination, entry, and downstream competition

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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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Bibliographic 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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Keywords: Countervailing Power; Exclusion; Buyers’ Fragmentation;

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  8. 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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  13. Inderst, Roman & Wey, Christian, 2005. "How Strong Buyers Spur Upstream Innovation," CEPR Discussion Papers 5365, C.E.P.R. Discussion Papers.
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  18. von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
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Cited by:
  1. Battigalli, Pierpaulo & Fumagalli, Chiara & Polo, Michele, 2006. "Buyer Power and Quality Improvements," CEPR Discussion Papers 5814, C.E.P.R. Discussion Papers.
  2. Ryoko Oki & Noriyuki Yanagawa, 2009. "Exclusive Dealing and Large Distributors," CARF F-Series CARF-F-152, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  3. Ryoko Oki & Noriyuki Yanagawa, 2009. "Exclusive Dealing and Large Distributors," CIRJE F-Series CIRJE-F-626, CIRJE, Faculty of Economics, University of Tokyo.
  4. Edward Hunter Christie & Pavel K. Bev & Volodymyr Golovko, 2011. "Vulnerability and Bargaining Power in EU-Russia Gas Relations," FIW Research Reports series III-003, FIW.

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