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Buyers' Miscoordination, Entry and Downstream Competition

  • Chiara Fumagalli
  • Massimo Motta

This article shows that buyers' coordination failures might prevent entry in an industry with an incumbent firm and a more efficient potential entrant. If there were 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 less likely the lower the number of buyers. For any given number of buyers, exclusion is 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. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2008.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 118 (2008)
Issue (Month): 531 (08)
Pages: 1196-1222

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Handle: RePEc:ecj:econjl:v:118:y:2008:i:531:p:1196-1222
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