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Buyer Power and Supplier Incentives

Referierte Aufsätze Web of Science

Roman Inderst, Christian Wey

In: European Economic Review 51 (2007), 3, S. 647-667


This paper analyzes the origins and welfare consequences of buyer power. We show that if suppliers are capacity constrained or have strictly convex costs, there are two different channels through which large buyers can obtain more favorable terms from their suppliers. In particular, we show how the presence of large buyers can then erode the value of suppliers' outside option. Somewhat surprisingly, we show how this can induce suppliers to undertake strategies that lead to higher output and potentially higher welfare.

JEL-Classification: L12;L41;D43
Keywords: Buyer power, Merger, Retailing