Welfare Effects of Buyer and Seller Power

Mert Demirer and Michael Rubens

No 33371, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we provide a theoretical characterization of the welfare effects of buyer and seller power in vertical relations and introduce an empirical approach for quantifying the contributions of each channel to deadweight loss. Our model accommodates both monopsony distortions from buyer power and double-marginalization distortions from seller power. Rather than imposing a specific form of vertical conduct, we allow it to arise endogenously based on model primitives. We show that the relative elasticity of upstream supply and downstream demand is the key determinant of whether buyer or seller power creates distortions. Applying our framework to coal procurement by power plants in Texas, we find that 83% of the distortion comes from the monopoly power of coal mines, with the remainder attributed to the monopsony power of power plants.

JEL-codes: J42 L10 L41 L42 (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-com, nep-ene, nep-ind and nep-reg
Note: IO LS
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33371.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33371

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33371
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().