Buyer power through the differentiation of suppliers

Claire Chambolle and Sofia Villas-Boas

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: This paper argues that rival retailers may choose to differentiate their supplying producers, even at the expense of downgrading the quality of the product offered to consumers, to improve their buyer power. We show that, through the differentiation of suppliers, a retailer may obtain a larger slice of a smaller pie, i.e, smaller bilateral joint profits. Thus, the "only" purpose of differentiation is to gain increasing buyer power. This result may hold (i) when retailers compete in the final market or (ii) when retailers are active in separate markets. The differentiation of suppliers, which results from a buyer power motive, may be harmful for consumer surplus and social welfare.

Keywords: Buyer power; Differentiation; Bargaining; Vertical relationships; Economic Theory; Applied Economics; Econometrics; Economics (search for similar items in EconPapers)
Date: 2015-11-01
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Citations: View citations in EconPapers (4)

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Journal Article: Buyer power through the differentiation of suppliers (2015)
Working Paper: Buyer power through the differentiation of suppliers (2015)
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