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Buyer power and exclusion in vertically related markets

We explore how the incentives for exclusion, both in upstream and downstream vertical markets, are related to the bargaining position of suppliers and retailers. We consider a model with a dominant upstream manufacturer and a competitive fringe of producers of imperfect substitutes offering their products to two differentiated downstream retailers. In this model we contrast the equilibrium outcome in two alternative situations. The first one is when the dominant supplier holds all the bargaining power, and this is compared with the outcome when the retailers have all the bargaining power. We show that exclusion occurs when interbrand and intrabrand competition is strong. Moreover, in contrast to the received literature, we find that when retailers have buyer power, this enhances welfare compared to when the manufacturer holds all the bargaining power.

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File URL: https://www.uib.no/filearchive/wp01.12-d.pdf
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Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 01/12.

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Length: 115 pages
Date of creation: 31 Jan 2012
Date of revision:
Handle: RePEc:hhs:bergec:2012_001
Contact details of provider: Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
Web page: http://www.uib.no/econ/en
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  1. Fumagalli, Chiara & Motta, Massimo, 2002. "Exclusive Dealing and Entry, when Buyers Compete," CEPR Discussion Papers 3493, C.E.P.R. Discussion Papers.
  2. Jeanine Miklós‐Thal & Patrick Rey & Thibaud Vergé, 2011. "Buyer Power And Intrabrand Coordination," Journal of the European Economic Association, European Economic Association, vol. 9(4), pages 721-741, 08.
  3. Patrick Rey & Michael D. Whinston, 2013. "Does retailer power lead to exclusion?," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 75-81, 03.
  4. Julian Wright, 2009. "Exclusive Dealing and Entry, When Buyers Compete: Comment," American Economic Review, American Economic Association, vol. 99(3), pages 1070-81, June.
  5. Dobson, Paul W. & Waterson, Michael, 2007. "The competition effects of industry-wide vertical price fixing in bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 935-962, October.
  6. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  7. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
  8. Patrick REY & Thibaud VERGE, 2009. "Resale Price Maintenance and Interlocking Relationships," Working Papers 2009-11, Centre de Recherche en Economie et Statistique.
  9. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, Elsevier.
  10. Bernheim, B.D., 1992. "Exclusive Dealing," Harvard Institute of Economic Research Working Papers 1622, Harvard - Institute of Economic Research.
  11. 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.
  12. Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
  13. Roman Inderst & Greg Shaffer, 2010. "Market-share contracts as facilitating practices," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 709-729.
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