A retail store can profitably commit to the lowest prices because that allows it to take significantly greater market share. If a discount store acquires a competing convenience store, the average retail price tends to go up. When the upstream market is oligopolistic, the discounter can exert buyer power in the upstream market and thus earn even more profits. That also allows the discounter to lower its competitors' profit margins and sales. The average retail price goes down because the buyer power leads to more sales through the discounter. However, the consumers as a whole may not better off, and the social welfare decreases.
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- Zhiqi Chen, 2001.
"Dominant Retailers and the Countervailing Power Hypothesis,"
Carleton Economic Papers
01-05, Carleton University, Department of Economics, revised 2003.
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- von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
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