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Buyer Power and Supplier Incentives

  • Roman Inderst
  • Christian Wey

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.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.42834.de/dp464.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 464.

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Length: 27 p.
Date of creation: 2005
Date of revision:
Handle: RePEc:diw:diwwpp:dp464
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  16. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-60, March.
  17. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May.
  18. Emmanuel Petrakis & Chrysovalantou Miliou & Nikos Vettas, 2009. "(In)efficient trading forms in competing vertical chains," Working Papers 0916, University of Crete, Department of Economics.
  19. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  20. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-97, June.
  21. 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.
  22. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
  23. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 133-164, 04.
  24. 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 210-30, March.
  25. 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.
  26. 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.
  27. von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
  28. 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, 03.
  29. Chiu, Y Stephen, 1998. "Noncooperative Bargaining, Hostages, and Optimal Asset Ownership," American Economic Review, American Economic Association, vol. 88(4), pages 882-901, September.
  30. 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.
  31. 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, MIT Press, vol. 113(2), pages 361-386, May.
  32. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
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