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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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market structure Countervailing Power and price discrimination the case of airports
Journal of Urban Economics, 2013Co-Authors: Alberto Iozzi, Tommaso Valletti, Jonathan HaskelAbstract:A number of interesting policy questions have arisen regarding airport landing fees. For example, what is the impact of joint ownership of airports? Does airline Countervailing Power stop airports raising fees? Should airports be prohibited, as an EU directive intends, from charging differential input prices to airlines? We set out a model of upstream airports and downstream airlines with varying Countervailing Power and pricing structures. Our major findings are: (a) an increase in upstream concentration or in the degree of differentiation between airports always increases the landing fee; (b) the effect of Countervailing Power, via an increase in downstream concentration, lowers landing fees, but typically does not pass through to consumers; (c) with Cournot competition, uniform landing fees are always higher than discriminatory fees.
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market structure Countervailing Power and price discrimination the case of airports
Social Science Research Network, 2011Co-Authors: Jonathan Haskel, Alberto Iozzi, Tommaso VallettiAbstract:We study bargained input prices where up and downstream firms can choose alternative vertical partners. We apply our model to bargained airport landing fees where a number of interesting policy questions have arisen. For example, what is the impact of joint ownership of airports? Does airline Countervailing Power stop airports raising fees? Should airports be prohibited, as an EU directive intends, from charging differential prices to airlines? Our major findings are (a) an increase in upstream concentration or in the substitutability between airports always increases the landing fee; (b) the effect of Countervailing Power, via an increase in downstream concentration, depends on the competition regime between airlines and whether airports can price discriminate: airline concentration reduces the landing fee when downstream competition is in quantities, but if downstream competition is in prices only where airports cannot discriminate. Furthermore, only in a specific case (Bertrand competition, uniform landing fees and undifferentiated goods) will lower fees pass through to consumers. (c) With Cournot competition, uniform landing fees are always higher than discriminatory fees, while the reverse is true with Bertrand competition. We also look at the incentives for airport expansion which raise quantities of passengers paying a given landing fee, but alters the nature of airline competition, which changes the landing fee.
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market structure Countervailing Power and price discrimination the case of airports
Research Papers in Economics, 2011Co-Authors: Alberto Iozzi, Tommaso Valletti, Jonathan HaskelAbstract:We study bargained input prices where up and downstream firms can choose alternative vertical partners. We apply our model to airport landing fees where a number of interesting policy questions have arisen. For example, what is the impact of joint ownership of airports? Does airline Countervailing Power stop airports raising fees? Should airports be prohibited, as an EU directive intends, from charging differential prices to airlines? Our major findings are: (a) an increase in upstream concentration or in the substitutability between airports always increases the landing fee; (b) the effect of Countervailing Power, via an increase in downstream concentration, typically lowers landing fees, but depends on the competition regime between airlines and whether airports can price discriminate: airline concentration reduces the landing fee when downstream competition is in quantities, but if downstream competition is in prices landing fees fall only where airports cannot discriminate. Furthermore, only in a specific case (Bertrand competition, uniform landing fees and undifferentiated goods) will lower fees pass through to consumers. (c) With Cournot competition, uniform landing fees are always higher than discriminatory fees, while the reverse is true with Bertrand competition.
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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.
Zhiqi Chen - One of the best experts on this subject based on the ideXlab platform.
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Countervailing Power and product diversity
Research Papers in Economics, 2004Co-Authors: Zhiqi ChenAbstract:The emergence of Powerful, big box retailers such as Wal-Mart and Home Depot has enhanced the interest among both academics and non-academics in the effects of Countervailing Power. One of the major concerns expressed by some commentators is that rising Countervailing Power will lead to poorer product selection for consumers. They believe that manufacturers of some product varieties will be forced to exit as their profit margins are squeezed by the Power retailers. From the perspective of economic theory, however, it is not obvious that a retailer with Countervailing Power would have incentives to reduce the variety of products available to its customers. Indeed, so far there has been no formal analysis to determine whether such concern over product diversity is warranted. The existing theoretical analyses of Countervailing Power focus on the price effects, i.e., whether consumer prices will increase or decrease as a result of increased buyer Power in the hands of retailers (von Ungern-Sternberg 1996, Dobson and Waterson 1997, Chen 2003). The objective of this paper is to analyse the effects of Countervailing Power on product diversity. In the model, product diversity is measured by the number of differentiated products sold by retailers in equilibrium. There are several retailers, but only one is large enough to possess Countervailing Power against the manufacturer(s). In the upstream market, I consider two scenarios. In the first scenario, there is a monopolist manufacturer who sets the number of product varieties to be produced. In the second scenario, products are supplied by monopolistically competitive firms, with each firm selling one variety. The focus of my analysis will be on how a rise in the large retailer's Countervailing Power, measured by its ability to capture a larger share of the joint profit, will affect the equilibrium number of varieties produced. References: Chen, Z. (2003) "Dominant retailers and the Countervailing Power hypothesis," RAND Journal of Economics, forthcoming Dobson, P.W. and M. Waterson.(1997) "Countervailing Power and consumer prices," Economic Journal, 107: 418-430 von Ungern-Sternberg, T. (1996) "Countervailing Power revisited," International Journal of Industrial Organization, 14:507-20
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Countervailing Power and product diversity
Econometric Society 2004 North American Winter Meetings, 2004Co-Authors: Zhiqi ChenAbstract:To analyse the effects of Countervailing Power on product variety, I construct a model in which a monopoly manufacturer sells a set of differentiated products through a large retailer and many small, competitive retailers. It is shown that an increase in the Countervailing Power of the large retailer tends to reduce the number of products manufactured in equilibrium, and the reduction in product variety may be accompanied by a fall in retail prices. Therefore, price changes, on which the existing theoretical analyses are focussed, do not tell the whole story about how consumers will be affected by Countervailing Power.
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monopoly and product diversity the role of retailer Countervailing Power
Carleton Economic Papers, 2004Co-Authors: Zhiqi ChenAbstract:We analyse a monopolist’s choice of product diversity and the effects of retailer Countervailing Power on that choice. We show that monopoly causes distortion in product diversity even after we take into consideration the effects of monopoly pricing. Specifically, the number of differentiated goods produced by the monopolist is smaller than that of the constrained social optimum. Retailer Countervailing Power lowers consumer prices but reduces product diversity. Consequently, it alleviates the distortion in prices but exacerbates the distortion in product diversity. In our model the former is outweighed by the latter and Countervailing Power makes consumers worse off. Therefore, price changes do not tell the whole story about how consumers are affected by Countervailing Power.
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dominant retailers and the Countervailing Power hypothesis
Social Science Research Network, 2003Co-Authors: Zhiqi ChenAbstract:I assess rigorously the Countervailing-Power hypothesis using a model that captures the main ingredients of Galbraith's (1952) arguments as well as some of the important features of the retail industry. I demonstrate that an increase in the amount of Countervailing Power possessed by a dominant retailer can indeed lead to a fall in retail prices for consumers. However, total surplus does not always increase with the rise of Countervailing Power because of the possible efficiency loss in retailing. Furthermore, the presence of fringe competition is crucial for Countervailing Power to benefit consumers.
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dominant retailers and the Countervailing Power hypothesis
Research Papers in Economics, 2003Co-Authors: Zhiqi ChenAbstract:The growing dominance of Powerful big-box retailers in recent years has enhanced the interests in Galbraith's (1952) hypothesis of Countervailing Power. The objective of this paper is to assess rigorously this hypothesis using a theoretical model that captures the main ingredients of Galbraith's arguments as well as some of the important features of retail industry. It is demonstrated that consistent with the hypothesis an increase in the amount of Countervailing Power possessed by a dominant retailer can indeed lead to a fall in retail price for consumers. But this fall in retail price is not the result of a benevolent retailer acting on behalf of consumers but of a self-interested supplier trying to offset the reduction in profits caused by the rise in Countervailing Power. Total surplus does not always increase with the rise of Countervailing Power because of the possible efficiency loss on production side. Furthermore, the presence of fringe competition is crucial for Countervailing Power to benefit consumers and that there is a limit to how far a dominant retailer will go in its pursuit of Countervailing Power. The analysis in this paper, therefore, does not support the contention that Countervailing Power can replace competition as the regulatory mechanism of the economy.
Bradley J Ruffle - One of the best experts on this subject based on the ideXlab platform.
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experiments and competition policy buyer Countervailing Power a survey of the theory and experimental evidence
Social Science Research Network, 2009Co-Authors: Bradley J RuffleAbstract:The rise of mega-retailers and industry concentration levels has recently generated an interest among economists and antitrust policymakers in the effects of buyer Countervailing Power. There exists a considerable theoretical literature offering a range of sources of Powerful buyers' ability to extract price discounts. The explanations that have been tested experimentally have all found laboratory support. This paper surveys the theoretical literature on Countervailing Power, emphasizing experimental tests where available. The increasing policy relevance of this topic and the blossoming of theoretical models contrasted with the dearth of experimental tests point to fruitful directions for research.
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buyer concentration as a source of Countervailing Power evidence from experimental posted offer markets
Research Papers in Economics, 2006Co-Authors: Jim Englewarnick, Bradley J RuffleAbstract:We experimentally examine the impact of buyer concentration on the pricing of a monopolist. In our experimental markets, a monopolist faces either two or four buyers. Markets with two buyers achieve significantly lower prices, sometimes below competitive levels, than those with four buyers. We design an additional pair of treatments to pinpoint the source of this difference. We attribute the lower pries in the two-buyer treatment to the monopolist pricing more cautiously when there are fewer buyers in order to avoid costly losses in sales. Buyer concentration may thus be an elective source of Countervailing Power.
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buyer concentration as a source of Countervailing Power evidence from experimental posted offer markets
Social Science Research Network, 2005Co-Authors: Jim Englewarnick, Bradley J RuffleAbstract:Although much research has been devoted to the impact of seller structure on market outcomes, considerably less is known about the influence of buyer structure. We examine the impact of buyer concentration on the pricing of a monopolist. We design experimental markets in which a monopolist faces either two or four buyers. Markets with two buyers achieve significantly lower prices, sometimes below competitive levels, than those with four buyers. We design an additional pair of treatments to pinpoint the source of this difference. We attribute the lower prices in the two-buyer treatment to the monopolist pricing more cautiously when there are fewer buyers in order to avoid costly losses in sales. Buyer concentration may thus be an effective source of Countervailing Power.
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buyer Countervailing Power a survey of experimental evidence
Research Papers in Economics, 2005Co-Authors: Bradley J RuffleAbstract:The rise of mega-retailers and industry concentration levels has recently generated an interest among economists and antitrust policymakers in the effects of buyer Countervailing Power. There exists a considerable theoretical literature offering a range of sources of Powerful buyers’ ability to extract price discounts. The explanations that have been tested experimentally have all found laboratory support. This paper surveys the theoretical literature on Countervailing Power, emphasizing experimental tests where available. The increasing policy relevance of this topic and the blossoming of theoretical models contrasted with the dearth of experimental tests point to fruitful directions for research.
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buyer Countervailing Power versus monopoly Power evidence from experimental posted offer markets
Economics Papers, 2002Co-Authors: Jim Englewarnick, Bradley J RuffleAbstract:Although much research has been devoted to the impact of seller structure on market outcomes, considerably less is known about the influence of buyer structure. We examine the impact of buyer concentration on the pricing of a monopolist. Markets with both two and four buyers achieve prices well below the monopoly price, attaining even competitive levels - sometimes even lower. Moreover, markets with only two buyers show significantly lower prices than those with four buyers. We design an additional pair of treatments to pinpoint the source of this difference. We attribute the lower prices in the two-buyer treatment to the monopolist pricing more cautiously when there are fewer buyers in order to avoid costly losses in sales. Buyer concentration is thus an effective source of Countervailing Power: even an unregulated monopolist that faces no possible threat of entry may price competitively.
David E. Davis - One of the best experts on this subject based on the ideXlab platform.
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Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions
Review of Industrial Organization, 2014Co-Authors: David E. DavisAbstract:State agencies in infant-formula procurement auctions receive lower bids when they are in buyer alliances than when they are unallied. The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) uses an auction to procure infant formula. Manufacturers bid on the right to be an agency’s sole supplier by offering a rebate on formula sold through WIC. Agencies frequently join together in buyer alliances. An empirical estimation shows that bids are lower to alliances and that lower prices result because alliances are heterogeneous. Results suggest that when heterogeneity is not controlled, bids decline with alliance size, which has policy implications because Congress recently limited alliance size.
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buyer alliances as Countervailing Power in wic infant formula auctions
Social Science Research Network, 2011Co-Authors: David E. DavisAbstract:State WIC agencies in infant-formula procurement auctions receive lower bids and final prices when they are in buyer’s alliances than when they are unallied. The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) uses an auction to procure infant formula. Manufacturers bid on the right to be an agency’s sole supplier by offering a rebate on formula sold through WIC. A theoretical model of rebates shows that bidders may shade their bids and extract surplus from agencies. Estimation shows that bids are lower to alliances suggesting that alliances countervail the Power of bidders to extract surplus.
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buyer alliances as Countervailing Power in wic infant formula auctions
Research Papers in Economics, 2011Co-Authors: David E. DavisAbstract:US government agencies in WIC infant-formula procurement auctions receive lower bids and final prices when they are in buyer’s alliances than when they are unallied. The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) uses an auction to procure infant formula. Manufacturers bid on the right to be an agency’s sole supplier by offering a rebate on formula sold through WIC. This paper investigates whether bidders are more aggressive when buyers band together to jointly offer infant formula contracts. Results suggest that WIC agencies that band together to form an alliance receive stronger bids.
Alberto Iozzi - 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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market structure Countervailing Power and price discrimination the case of airports
Journal of Urban Economics, 2013Co-Authors: Alberto Iozzi, Tommaso Valletti, Jonathan HaskelAbstract:A number of interesting policy questions have arisen regarding airport landing fees. For example, what is the impact of joint ownership of airports? Does airline Countervailing Power stop airports raising fees? Should airports be prohibited, as an EU directive intends, from charging differential input prices to airlines? We set out a model of upstream airports and downstream airlines with varying Countervailing Power and pricing structures. Our major findings are: (a) an increase in upstream concentration or in the degree of differentiation between airports always increases the landing fee; (b) the effect of Countervailing Power, via an increase in downstream concentration, lowers landing fees, but typically does not pass through to consumers; (c) with Cournot competition, uniform landing fees are always higher than discriminatory fees.
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market structure Countervailing Power and price discrimination the case of airports
Social Science Research Network, 2011Co-Authors: Jonathan Haskel, Alberto Iozzi, Tommaso VallettiAbstract:We study bargained input prices where up and downstream firms can choose alternative vertical partners. We apply our model to bargained airport landing fees where a number of interesting policy questions have arisen. For example, what is the impact of joint ownership of airports? Does airline Countervailing Power stop airports raising fees? Should airports be prohibited, as an EU directive intends, from charging differential prices to airlines? Our major findings are (a) an increase in upstream concentration or in the substitutability between airports always increases the landing fee; (b) the effect of Countervailing Power, via an increase in downstream concentration, depends on the competition regime between airlines and whether airports can price discriminate: airline concentration reduces the landing fee when downstream competition is in quantities, but if downstream competition is in prices only where airports cannot discriminate. Furthermore, only in a specific case (Bertrand competition, uniform landing fees and undifferentiated goods) will lower fees pass through to consumers. (c) With Cournot competition, uniform landing fees are always higher than discriminatory fees, while the reverse is true with Bertrand competition. We also look at the incentives for airport expansion which raise quantities of passengers paying a given landing fee, but alters the nature of airline competition, which changes the landing fee.
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market structure Countervailing Power and price discrimination the case of airports
Research Papers in Economics, 2011Co-Authors: Alberto Iozzi, Tommaso Valletti, Jonathan HaskelAbstract:We study bargained input prices where up and downstream firms can choose alternative vertical partners. We apply our model to airport landing fees where a number of interesting policy questions have arisen. For example, what is the impact of joint ownership of airports? Does airline Countervailing Power stop airports raising fees? Should airports be prohibited, as an EU directive intends, from charging differential prices to airlines? Our major findings are: (a) an increase in upstream concentration or in the substitutability between airports always increases the landing fee; (b) the effect of Countervailing Power, via an increase in downstream concentration, typically lowers landing fees, but depends on the competition regime between airlines and whether airports can price discriminate: airline concentration reduces the landing fee when downstream competition is in quantities, but if downstream competition is in prices landing fees fall only where airports cannot discriminate. Furthermore, only in a specific case (Bertrand competition, uniform landing fees and undifferentiated goods) will lower fees pass through to consumers. (c) With Cournot competition, uniform landing fees are always higher than discriminatory fees, while the reverse is true with Bertrand competition.
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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.
