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Buyer Power and Supplier Incentives

Author

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  • Roman Inderst
  • Christian Wey

Abstract

This paper investigates how the formation of larger buyers affects a supplier's profits and, by doing so, his incentives to undertake non-contractible activities. We first identify two chan-nels of buyer power, which allows larger buyers to obtain discounts. We subsequently exam-ine the effects of buyer power on the supplier's incentives and on social welfare. Contrary to some informal claims in the policy debate on buyer power, we find that the exercise of buyer power - even though reducing supplier's profits- may often increase a supplier's incentive to undertake welfare enhancing activities. ZUSAMMENFASSUNG - (Käufermacht und die Investitionsanreize der Hersteller) Dieser Aufsatz entwickelt einen Modellrahmen zur Analyse der Wirkungen von Käufermacht auf Zwischenproduktmärkten. Zunächst werden Bedingungen identifiziert, die gewährleisten, daß Käufer mit großem Nachfragevolumen von Herstellern günstigere Konditionen erhalten als relativ kleine Käufer und somit über "Käufermacht" verfügen. So dann untersucht die Arbeit, ob die Existenz von Käufermacht zu einer Verringerung der Innovationsanreize auf Seiten der Herstellern führt. Es wird gezeigt, daß eine solche Vermutung im Allgemeinen unzutreffend ist und daß Käufermacht im Gegenteil häufig höhere Investitionsanstrengungen auf der Herstellerseite induziert.

Suggested Citation

  • Roman Inderst & Christian Wey, 2003. "Buyer Power and Supplier Incentives," CIG Working Papers SP II 2003-05, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  • Handle: RePEc:wzb:wzebiv:spii2003-05
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    Keywords

    Buyer Power; Investments; Competition Policy;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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