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Buyer Power and Supplier Incentives

  • Inderst, Roman
  • Wey, Christian

This Paper investigates how the formation of larger buyers affects a supplier's profits and, by doing so, his incentives to undertake non-contractible activities. We first identify two channels of buyer power, which allows larger buyers to obtain discounts. We subsequently examine the effects of buyer power on the supplier's incentives and social welfare. Contrary to some informal claims in the policy debate on buyer power, we find that the exercise of buyer power -even though reducing supplier's profits- may often increase a supplier's incentive to undertake welfare enhancing activities.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3547.

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Date of creation: Sep 2002
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Handle: RePEc:cpr:ceprdp:3547
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