Buyer Power through Producer's Differentiation

Claire Chambolle () and Sofia Villas-Boas

Working Papers from HAL

Abstract: This paper shows that retailers may choose to offer products differentiated in quality, not to relax downstream competition, but to improve their buyer power in the negotiation with their supplier. We consider a simple vertical industry where two producers sell products differentiated in quality to two retailers who operate in separated markets. In the game, first retailers choose which product to carry, then each retailer and her chosen producer bargain over the terms of a two-part tariff contract and retailers finally choose the quantities. When upstream production costs are convex, the share of the total profits going to the retailer would be higher if they choose to differentiate. We thus isolate the wish to differentiate as "only" due to increasing buyer power: via producer's differentiation, the retailer gets a larger share of smaller total profits. This result also holds when retailers compete downstream. We derive the consequences of a differentiation induced by buyer power motives for consumer surplus.

Keywords: Differentiation; Buyer Power; Product line; Puissance d'achat; Gamme de produit; Différentiation des produits (search for similar items in EconPapers)
Date: 2007
Note: View the original document on HAL open archive server: https://hal.science/hal-00243058
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Buyer Power Through Producer Differentiation (2015)
Working Paper: Buyer Power through Producer's Differentiation (2008)
Working Paper: BUYER POWER THROUGH PRODUCER'S DIFFERENTIATION (2007)
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