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Downstream Competition and the Effects of Buyer Power

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Abstract

To examine the interaction between buyer power and competition intensity in a downstream market, we consider four variations of a model in which oligopolistic retailers compete in the downstream market and one of them is a large retailer that has its own exclusive supplier. We demonstrate that an increase in the buyer power of the large retailer against its supplier leads to a fall in retail price and an improvement in consumer welfare, and this is true even in the extreme case where the large retailer is a monopoly in the downstream market. More interestingly, we find that the beneficial effects of an increase in buyer power are large when the intensity of downstream competition is low, with the effects being the largest in the case of downstream monopoly.

Suggested Citation

  • Zhiqi Chen & Hong Ding & Zhiyang Liu, 2015. "Downstream Competition and the Effects of Buyer Power," Carleton Economic Papers 15-06, Carleton University, Department of Economics.
    • Handle: RePEc:car:carecp:15-06
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    Cited by:

    1. Patrice Bougette & Oliver Budzinski & Frédéric Marty, 2019. "Exploitative Abuse and Abuse of Economic Dependence: What Can We Learn From an Industrial Organization Approach?," Revue d'économie politique, Dalloz, vol. 129(2), pages 261-286.
    2. Aditya Bhattacharjea & Srishti Gupta, 2022. "Alternative Forms of Buyer Power in a Vertical Duopoly: Implications for profits and consumer welfare," Working papers 326, Centre for Development Economics, Delhi School of Economics.
    3. Noriaki Matsushima & Shohei Yoshida, 2016. "The countervailing power hypothesis when dominant retailers function as sales promoters," ISER Discussion Paper 0981, Institute of Social and Economic Research, Osaka University.
    4. Aditya Bhattacharjea & Srishti Gupta, 2024. "Alternative forms of buyer power in a vertical duopoly: implications for profits, welfare, and cost pass-through," Journal of Economics, Springer, vol. 142(2), pages 163-198, July.
    5. Nejat Anbarci & Kang Rong & Jaideep Roy, 2019. "Random-settlement arbitration and the generalized Nash solution: one-shot and infinite-horizon cases," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 21-52, July.
    6. Qiu Zhao, 2019. "The Influence of Buyer Power on Supply Chain Pricing with Downstream Competition," Sustainability, MDPI, vol. 11(10), pages 1-19, May.

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    More about this item

    Keywords

    buyer power; retail competition; antitrust policy;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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