IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v51y2007i3p647-667.html
   My bibliography  Save this article

Buyer power and supplier incentives

Author

Listed:
  • Inderst, Roman
  • Wey, Christian

Abstract

This paper argues that - in contrast to an often expressed view - the formation of larger and more powerful buyers need not reduce welfare by stifling suppliers' incentives. If contracts are determined in bilateral negotiations, the presence of larger buyers may both increase suppliers' incentives for product improvement and induce suppliers to choose a more efficient technology. The paper also isolates two different channels by which larger buyers can obtain a discount.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
  • Handle: RePEc:eee:eecrev:v:51:y:2007:i:3:p:647-667
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014-2921(06)00024-9
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Suchan Chae & Paul Heidhues, 2004. "Buyers' Alliances for Bargaining Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 731-754, December.
    2. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-497, June.
    3. Daniel F. Spulber, 2002. "Market Microstructure and Incentives to Invest," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 352-381, April.
    4. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
    5. Chrysovalantou Milliou & Emmanuel Petrakis & Nikos Vettas, 2009. "(In)efficient Trading Forms in Competing Vertical Chains," Working Papers 0916, University of Crete, Department of Economics.
    6. Chiu, Y Stephen, 1998. "Noncooperative Bargaining, Hostages, and Optimal Asset Ownership," American Economic Review, American Economic Association, vol. 88(4), pages 882-901, September.
    7. Leonardo Felli & Kevin Roberts, 2016. "Does Competition Solve the Hold-up Problem?," Economica, London School of Economics and Political Science, vol. 83(329), pages 172-200, January.
    8. Anthony Dukes & Esther Gal–Or, 2003. "Negotiations and Exclusivity Contracts for Advertising," Marketing Science, INFORMS, vol. 22(2), pages 222-245, November.
    9. Martimort David & Stole Lars, 2003. "Contractual Externalities and Common Agency Equilibria," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-40, July.
    10. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    11. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-460, March.
    12. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
    13. Scheffman, David T & Spiller, Pablo T, 1992. "Buyer's Strategies, Entry Barriers, and Competition," Economic Inquiry, Western Economic Association International, vol. 30(3), pages 418-436, July.
    14. David de Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options and the Property Rights Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 361-386.
    15. Chen, Zhiqi, 2003. " Dominant Retailers and the Countervailing-Power Hypothesis," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 612-625, Winter.
    16. Sara Fisher Ellison & Christopher M. Snyder, 2010. "COUNTERVAILING POWER IN WHOLESALE PHARMACEUTICALS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 32-53, March.
    17. Daniel P. O'Brien & Greg Shaffer, 1997. "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 755-785, December.
    18. Jonas Björnerstedt & Johan Stennek, 2001. "Bilateral Oligopoly," CIG Working Papers FS IV 01-08, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    19. 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.
    20. Patrick Bolton & Michael D. Whinston, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 121-148.
    21. Katz, Michael L, 1987. "The Welfare Effects of Third-Degree Price Discrimination in," American Economic Review, American Economic Association, vol. 77(1), pages 154-167, March.
    22. Innes, Robert & Sexton, Richard J., 1993. "Customer coalitions, monopoly price discrimination and generic entry deterrence," European Economic Review, Elsevier, vol. 37(8), pages 1569-1597, December.
    23. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    24. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-414, May.
    25. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
    26. 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.
    27. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-430, March.
    28. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
    29. Rachel E. Kranton & Deborah F. Minehart, 2000. "Networks versus Vertical Integration," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 570-601, Autumn.
    30. von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
    31. Ronald W. Cotterill, 1997. "The food distribution system of the future: Convergence towards the US or UK model?," Agribusiness, John Wiley & Sons, Ltd., vol. 13(2), pages 123-135.
    32. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 133-164, April.
    33. Michael Waterson, 1980. "Price-Cost Margins and Successive Market Power," The Quarterly Journal of Economics, Oxford University Press, vol. 94(1), pages 135-150.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:51:y:2007:i:3:p:647-667. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/eer .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.