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Buyer groups as strategic commitments

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  • Dana, James D.

Abstract

Buyer cooperatives, buyer alliances, and horizontal mergers are often perceived as attempts to increase buyer power. In contrast to prior research emphasizing group size, I show that even small buyer groups composed of buyers with heterogeneous preferences can increase price competition among rival sellers by committing to purchase exclusively from one seller. Without transfer payments, at least one buyer group exists for each pair of sellers and buyer groups membership is chosen to achieve indifference between the two sellers. With transfer payments, and just two sellers, the grand coalition is a coalition-proof subgame perfect equilibrium (CP-SPNE), though equilibria with arbitrarily many buyer groups also exist. With three sellers (and with more sellers when the distribution of buyers is symmetric), a CP-SPNE always exists, all coalition-proof equilibria are payoff equivalent and have at least one buyer group for each pair of firms, so the grand coalition is not an equilibrium.

Suggested Citation

  • Dana, James D., 2012. "Buyer groups as strategic commitments," Games and Economic Behavior, Elsevier, vol. 74(2), pages 470-485.
  • Handle: RePEc:eee:gamebe:v:74:y:2012:i:2:p:470-485 DOI: 10.1016/j.geb.2011.08.014
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Funaki, Y. & Houba, H.E.D. & Motchenkova, E., 2012. "Market Power in Bilateral Oligopoly Markets with Nonexpendable Infrastructure," Discussion Paper 2012-041, Tilburg University, Tilburg Law and Economic Center.
    2. Øystein Foros & Hans Jarle Kind, 2017. "Upstream Partnerships among Competitors when Size Matters," CESifo Working Paper Series 6512, CESifo Group Munich.
    3. Julia Graf, 2014. "The effects of rebate contracts on the health care system," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(5), pages 477-487, June.
    4. Jeon, Doh-Shin & Menicucci, Domenico, 2014. "Buyer Group and Buyer Power When Sellers Compete," TSE Working Papers 14-543, Toulouse School of Economics (TSE), revised Nov 2017.
    5. Chris Doyle & Martijn Han, 2014. "Cartelization Through Buyer Groups," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(3), pages 255-275, May.
    6. repec:eee:ejores:v:261:y:2017:i:3:p:903-917 is not listed on IDEAS
    7. David Davis, 2014. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 121-138, September.
    8. Stéphane Caprice & Patrick Rey, 2015. "Buyer Power from Joint Listing Decision," Economic Journal, Royal Economic Society, vol. 125(589), pages 1677-1704, December.
    9. Jeon, Doh-Shin & Menicucci, Domenico, 2013. "The Benefits of Diverse Preferences in Library Consortia," TSE Working Papers 13-425, Toulouse School of Economics (TSE), revised Dec 2015.
    10. Chen, Yongmin & Li, Jianpei, 2015. "Bundled procurement," MPRA Paper 63423, University Library of Munich, Germany.
    11. Zhou, Maosen & Dan, Bin & Ma, Songxuan & Zhang, Xumei, 2017. "Supply chain coordination with information sharing: The informational advantage of GPOs," European Journal of Operational Research, Elsevier, vol. 256(3), pages 785-802.
    12. Jeon, Doh-Shin & Menicucci, Domenico, 2013. "When Is Building a Library Consortium Bene ficial?," IDEI Working Papers 791, Institut d'Économie Industrielle (IDEI), Toulouse, revised 07 Apr 2014.
    13. Zhou, Yuan & Xie, Jinxing, 2014. "Potentially self-defeating: Group buying in a two-tier supply chain," Omega, Elsevier, vol. 49(C), pages 42-52.

    More about this item

    Keywords

    Buyer groups; Buyer alliances; Buyer power; Strategic commitment; Coalition-proof equilibria; Coalition formation; Horizontal mergers;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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