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Cartelization Through Buyer Groups

  • Chris Doyle
  • Martijn A. Han
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    Retailers may enjoy stable cartel rents in their output market through the formation of a buyer group in their input market. A buyer group allows retailers to credibly commit to increased input prices, which serve to reduce combined final output to the monopoly level; increased input costs are then refunded from suppliers to retailers through slotting allowances or rebates. The stability of such an “implied cartel†depends on the retailers’ incentives to secretly source from a supplier outside of the buyer group arrangement at lower input prices. Cheating is limited if retailers sign exclusive dealing or minimum purchase provisions. We discuss the relevancy of our findings for antitrust policy.

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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2012-059.pdf
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    Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2012-059.

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    Length: 24 pages
    Date of creation: Oct 2012
    Date of revision:
    Handle: RePEc:hum:wpaper:sfb649dp2012-059
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    1. Marvel, Howard P. & Yang, Huanxing, 2008. "Group purchasing, nonlinear tariffs, and oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1090-1105, September.
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    6. 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.
    7. Roman Inderst & Tommaso M. Valletti, 2011. "Buyer Power And The ‘Waterbed Effect’," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 1-20, 03.
    8. Blair,Roger D. & Lafontaine,Francine, 2011. "The Economics of Franchising," Cambridge Books, Cambridge University Press, number 9780521775892, Junio.
    9. Chen, Zhiqi & Ross, Thomas W., 2003. "Cooperating upstream while competing downstream: a theory of input joint ventures," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 381-397, March.
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    11. B. Douglas Bernheim & Michael D. Whinston, . "Exclusive Dealing," Working Papers 96008, Stanford University, Department of Economics.
    12. Oystein Foros & Hans Jarle Kind, 2006. "Do Slotting Allowances Harm Retail Competition?," CESifo Working Paper Series 1800, CESifo Group Munich.
    13. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    14. Irmen, Andreas, 1998. " Precommitment in Competing Vertical Chains," Journal of Economic Surveys, Wiley Blackwell, vol. 12(4), pages 333-59, September.
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    16. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
    17. Snyder, Christopher M., 1998. "Why do larger buyers pay lower prices? Intense supplier competition," Economics Letters, Elsevier, vol. 58(2), pages 205-209, February.
    18. Salvatore Piccolo, 2009. "Colluding through Suppliers," CSEF Working Papers 224, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 08 Apr 2010.
    19. Leslie M. Marx & Greg Shaffer, 2007. "Upfront payments and exclusion in downstream markets," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 823-843, 09.
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