Kaupendamáttur á sementsmarkaði
[Buyer power in the cement industry]
The Icelandic Competition Council recently ruled that a cement supplier with 75% market share is not dominant. The ruling was based on countervailing power of local concrete producers. To test the economic arguments for the ruling, we present a simplified bilateral oligopoly model of the in¬dustry where a new supplier enters a market competing with an incumbent. We show that it may be rational for buyers, given that some buying firms have switched to an entrant, to stay with a less efficient incumbent. Contracts negotiated with the incumbent are not as advantageous as those the entrant offers, but better than those that would prevail in monopoly of the entrant. This supports the aforementioned ruling.
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"Buyer Countervailing Power versus Monopoly Power: Evidence from Experimental Posted-Offer Markets,"
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" Dominant Retailers and the Countervailing-Power Hypothesis,"
RAND Journal of Economics,
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"Bilateral Monopolies and Incentives for Merger,"
RAND Journal of Economics,
The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
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