DP2908 Buyers' Coordination and Entry
|Author(s):||Chiara Fumagalli, Massimo Motta|
|Publication Date:||August 2001|
|Keyword(s):||contractual clauses, countervailing power, entry, exclusion, miscoordination, retailers|
|JEL(s):||D40, L13, L22, L40, M21|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2908|
Miscoordination of buyers might prevent entry in an industry with an incumbent and a more efficient potential entrant. Buyers' power therefore favours entry by eliminating coordination problems. We also identify a mechanism which facilitates entry: if the potential entrant could credibly offer to pay a penalty for unfulfilled orders, miscoordination would be eliminated. Without the penalty, we show that downstream competition also facilitates entry. The stronger the competition among buyers the less likely that miscoordination arises.