Upstream Competition and Downstream Buyer Power

Howard Smith and John Thanassoulis

No 5803, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: 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.

Keywords: Buyer; power (search for similar items in EconPapers)
JEL-codes: L13 L42 L66 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Working Paper: Upstream Competition and Downstream Buyer Power (2009)
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