DP3547 Buyer Power and Supplier Incentives
|Author(s):||Roman Inderst, Christian Wey|
|Publication Date:||September 2002|
|Keyword(s):||buyer power, mergers, retailing|
|JEL(s):||C78, D43, L13|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=3547|
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 channels of buyer power, which allows larger buyers to obtain discounts. We subsequently examine the effects of buyer power on the supplier's incentives and 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.