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Welfare Effects of Buyer and Seller Power

Author

Listed:
  • Mert Demirer
  • Michael Rubens

Abstract

We examine the welfare effects of buyer and seller power in vertically related markets and introduce an empirical approach for quantifying the contribution of each to market power distortions. Our model nests both monopsony distortions from buyer power and double-marginalization distortions from seller power. Rather than imposing either distortion by assumption, we analyze welfare effects when the source of the distortion is unknown. We characterize when buyer and seller power are countervailing or distortionary, offer a test to separate them empirically, and discuss implications for collective bargaining and merger policy. We demonstrate the application of our model in three empirical settings to examine whether (i) labor unions countervail employer monopsony power, (ii) agricultural cooperatives induce double marginalization, and (iii) vertical distortions in coal procurement stem from monopoly or monopsony power.

Suggested Citation

  • Mert Demirer & Michael Rubens, 2025. "Welfare Effects of Buyer and Seller Power," NBER Working Papers 33371, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33371
    Note: IO LS
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    Cited by:

    1. Vanessa Alvariez & Michele Fioretti & Ayumu Ken Kikkawa & Monica Morlacco, 2022. "Two-Sided Market Power in Firm-to-Firm Trade," Sciences Po Economics Publications (main) hal-03795736, HAL.
    2. Matteo Bizzarri, 2026. "Multilateral Market Power in Input-Output Networks," Papers 2603.21932, arXiv.org.

    More about this item

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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