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Christian Wey - One of the best experts on this subject based on the ideXlab platform.
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multi product bargaining bundling and Buyer Power
Economics Letters, 2020Co-Authors: Markus Dertwinkelkalt, Christian WeyAbstract:Abstract We re-consider the bilateral bargaining problem of a multi-product, manufacturer–retailer trading relationship. O’Brien and Shaffer (2005) have shown that the unbundling of contracts leads to downward distorted production levels if seller Power is strong, while otherwise the joint profit maximizing quantities are contracted (which is also always the case when bundling contracts are feasible). We show that the unbundling of contracts also leads to downward distorted output levels when the Buyer firm has sufficient (Nash) bargaining Power (i.e., Buyer Power). Our result is driven by cost substitutability (diseconomies of scope).
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Multi-product bargaining, bundling, and Buyer Power
2019Co-Authors: Markus Dertwinkel-kalt, Christian WeyAbstract:We re-consider the bilateral bargaining problem of a multi-product, manufacturer-retailer trading relationship. O'Brien and Shaffer (Rand JE 35:573-598, 2005) have shown that the unbundling of contracts leads to downward distorted production levels if seller Power is strong, while otherwise the joint profit maximizing quantities are contracted (which is also always the case when bundling contracts are feasible). We show that the unbundling of contracts also leads to downward distorted output levels when the Buyer firm has sufficient (Nash) bargaining Power (i.e., Buyer Power). Our result is driven by cost substitutability (diseconomies of scope).
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One-stop shopping behavior, Buyer Power, and upstream merger incentives
The Journal of Industrial Economics, 2018Co-Authors: Irina Baye, Vanessa Von Schlippenbach, Christian WeyAbstract:We analyze how consumer preferences for one†stop shopping affect the (Nash) bargaining relationships between a retailer and its suppliers. One†stop shopping preferences create ‘demand complementarities’ among otherwise independent products which lead to two opposing effects on upstream merger incentives: first a standard double mark†up problem and second a bargaining effect. The former creates merger incentives while the later induces suppliers to bargain separately. When Buyer Power becomes large enough, then suppliers stay separated which raises final good prices. We also show that our result can be obtained when wholesale prices are determined in a non†cooperative game and under two†part tariffs.
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one stop shopping behavior Buyer Power and upstream merger incentives
Research Papers in Economics, 2017Co-Authors: Irina Baye, Vanessa Von Schlippenbach, Christian WeyAbstract:We analyze how consumer preferences for one-stop shopping affect the (Nash) bargaining relationships between a retailer and its suppliers. One-stop shopping preferences create 'demand complementarities' among otherwise independent products which lead to two opposing effects on upstream merger incentives: first a standard double mark-up problem and second a bargaining effect. The former creates merger incentives while the later induces suppliers to bargain separately. When Buyer Power becomes large enough, then suppliers stay separated which raises final good prices. We also show that our result can be obtained when wholesale prices are determined in a non-cooperative game, under two-part tariffs and when products are substitutable.
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raising rivals cost through Buyer Power
Economics Letters, 2015Co-Authors: Markus Dertwinkelkalt, Justus Haucap, Christian WeyAbstract:We re-examine the view that a ban on price discrimination in input markets is particularly desirable in the presence of Buyer Power. This argument crucially depends on an inverse relationship between downstream firms’ profits and the uniform input price. Assuming different input efficiencies among downstream firms, we derive a necessary and sufficient condition such that a higher input price benefits a subset of relatively efficient downstream firms. In such instances, consumers may be better off if discriminatory pricing is feasible.
Tommaso Valletti - One of the best experts on this subject based on the ideXlab platform.
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vertical bargaining and countervailing Power
American Economic Journal: Microeconomics, 2014Co-Authors: Alberto Iozzi, Tommaso VallettiAbstract:We study a set of bilateral Nash bargaining problems between an upstream input supplier and several differentiated but competing retailers. If one bilateral bargain fails, the supplier can sell to the other retailers. We show that, in a disagreement, the other retailers’ behavior has a dramatic impact on the supplier’s outside options and, therefore, on input prices and welfare. We revisit the countervailing Buyer Power hypothesis and obtain results in stark contrast with previous findings, depending on the type of outside option. Our results apply, more generally, to the literature that incorporates negotiated input prices using bilateral Nash bargaining. (JEL C72, C78, D43, L13, L14, L81)
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Buyer Power and the waterbed effect
Journal of Industrial Economics, 2011Co-Authors: Roman Inderst, Tommaso VallettiAbstract:When a Buyer is able to obtain lower input prices from a supplier, is it possible that other Buyers will have to pay more for the same input as a result? Is this bad for consumers? We present a model that analyzes the conditions under which the asymmetric exercise of Buyer Power can lead to consumer detriment through raising other Buyers' wholesale prices (the ‘waterbed effect’).
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vertical bargaining and countervailing Power
Social Science Research Network, 2010Co-Authors: Alberto Iozzi, Tommaso VallettiAbstract:We study the existence of countervailing Buyer Power in a vertical industry where the input price is set via Nash bargainings between one upstream supplier and many differentiated but competing retailers. In case one bilateral bargaining fails, the supplier still has the ability to sell to the other retailers. We show that the capacity of these other retailers to react in the final market has a dramatic impact on the supplier’s outside options and, ultimately, on input prices and welfare. Under downstream quantity competition, we find either no or opposite support to the hypothesis of countervailing Power on input prices, as the retail industry becomes more concentrated. With price competition, we find a case for countervailing Power, but its existence depends on the degree of product differentiation and on the ability of competing retailers to react to a disagreement.
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Buyer Power and the waterbed effect
Research Papers in Economics, 2008Co-Authors: Roman Inderst, Tommaso VallettiAbstract:We present a simple model where the growth of one downstream firm generates lower wholesale prices for this firm but higher wholesale prices for its competitors (the “waterbed effect”). We derive conditions for when, even though firms compete in strategic complements, this harms consumers. This is more likely if larger firms already obtain substantial discounts compared to their smaller competitors. Furthermore, the identified “waterbed effect” holds irrespective of whether a firm grows by acquisition or “organically” by becoming more efficient.
Roman Inderst - One of the best experts on this subject based on the ideXlab platform.
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Buyer Power and mutual dependency in a model of negotiations
The RAND Journal of Economics, 2019Co-Authors: Roman Inderst, João MontezAbstract:We study bilateral bargaining between several Buyers and sellers in a framework that allows both sides, in case of a bilateral disagreement, flexibility to adjust trade with each of their other trading partners and receive the gross benefit generated by each adjustment. A larger Buyer pays a higher per‐unit price when Buyers' bargaining Power in bilateral negotiations is sufficiently low, and a lower price otherwise. An analogous result holds for sellers. These predictions, and the implications of different technologies, are explained by the fact that size is a source of mutual dependency and not an unequivocal source of Power.
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Buyer Power and Functional Competition for Innovation
2015Co-Authors: Roman Inderst, Zlata Jakubovic, Dragan JovanovicAbstract:Our analysis starts from the observation that with progressive consolidation in retailing and the spread of private labels, retailers increasingly take over functions in the vertical chain. Focusing on innovation, we isolate various reasons for why when a large retailer grows in size, this can lead to an inefficient shift of innovation activity away from manufacturers and to the large retailer. One rationale for this is the retailer's control of access to consumers, which gives rise to a rent-appropriation motive for innovation, next to a hold-up problem. With retail competition, through crowding out the manufacturer's innovative activity, a large retailer obtains a competitive advantage vis-a-vis smaller retailers. We further analyze when inefficiencies are aggravated in case a large retailer's presence threatens the manufacturer with imitation of his innovations.
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Buyer Power and the waterbed effect
Journal of Industrial Economics, 2011Co-Authors: Roman Inderst, Tommaso VallettiAbstract:When a Buyer is able to obtain lower input prices from a supplier, is it possible that other Buyers will have to pay more for the same input as a result? Is this bad for consumers? We present a model that analyzes the conditions under which the asymmetric exercise of Buyer Power can lead to consumer detriment through raising other Buyers' wholesale prices (the ‘waterbed effect’).
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Countervailing Power and dynamic efficiency
2010Co-Authors: Roman Inderst, Christian WeyAbstract:This paper studies the impact of Buyer Power on dynamic efficiency. We consider a bargaining model in which Buyer Power arises endogenously from size and may impact on a supplier's incentives to invest in lower marginal cost. We challenge the view frequently expressed in policy circles that the exercise of Buyer Power stifles suppliers' incentives. Instead, we find that the presence of larger Buyers keeps a supplier 'more on his toes' and induces him to improve the competitiveness of his offering, in terms of both price and quality, relative to Buyers' alternative options.
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Third-Degree Price Discrimination with Buyer Power
The B.E. Journal of Economic Analysis & Policy, 2009Co-Authors: Roman Inderst, Tommaso M. VallettiAbstract:This paper introduces a model of third-degree price discrimination where a seller's pricing Power is constrained by Buyers' outside options. Price uniformity performs more efficiently than discriminatory pricing, as uniform pricing allows weaker Buyers to exploit the more attractive outside option of stronger Buyers. This mechanism is markedly different from the mechanisms that are at work in case uniform pricing is imposed on an unconstrained monopolist.
Jeffrey H Rohlfs - One of the best experts on this subject based on the ideXlab platform.
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countervailing Buyer Power and mobile termination
Social Science Research Network, 2009Co-Authors: Jeffrey H RohlfsAbstract:Different countries have different practices with regard to charging for calls to mobile subscribers. In some countries, including: Canada, China, Hong Kong, Russia, Singapore and the United States, mobile network operators (MNOs) charge their subscribers airtime on calls that they receive. This regime is known as mobile party pays or MPP. In most of the rest of the world, however, mobile subscribers are not charged for incoming calls. Instead, the MNO levies a mobile-termination charge on other network operators for terminating calls. The originating network operator generally passes the mobile termination charge on to its subscriber who made the call. The regime is therefore known as calling partypays (CPP). This paper discusses the analysis required to support public policies regarding mobile termination. The analytical issues include: determination of market Power assessment of countervailing Buyer Power regulatory intervention
John Thanassoulis - One of the best experts on this subject based on the ideXlab platform.
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upstream competition and downstream Buyer Power
Research Papers in Economics, 2009Co-Authors: Howard Smith, John ThanassoulisAbstract:It is often claimed that large Buyers wield Buyer Power. Existing theories of this effect generally assume upstream monopoly. Yet the evidence is strongest with upstream competition. We show that upstream competition can yield Buyer Power for large Buyers by generating supplier-level volume uncertainty - a feature that emerges from case study evidence of upstream competition - so the negotiated price depends on the seller's cost expectation. By analyzing the effect of market structure changes on seller cost expectations the paper gives insights on three key policy-relevant questions around Buyer Power: (i) who wields it and under what circumstances (ii) does a downstream merger alter the Buyer Power of other Buyers (so-called waterbed effects); and (iii) how are the incentives to invest in upstream technology altered by the creation of large downstream firms?
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upstream competition and downstream Buyer Power
Social Science Research Network, 2006Co-Authors: Howard Smith, John ThanassoulisAbstract:This paper considers Buyer Power in the presence of upstream competition to supply a homogeneous product. A likely consequence of upstream competition is that each supplier is uncertain of its final output, because it does not know how many downstream Buyers will select it as a seller. We present a model where, for this reason, final volumes are uncertain for each seller. We find a new source of Buyer Power when the surplus function is nonlinear: the event of negotiation with a large Buyer increases the seller's expected output, which changes the expected average net surplus from the deal; this increases Buyer Power when the seller's surplus function is concave (and diminishes it when convex). We explore consequences for welfare, industry productivity, and investment incentives.
