Buyer Countervailing Power versus Monopoly Power: Evidence from Experimental Posted-Offer Markets

Jim Engle-Warnick () and Bradley Ruffle

No 2002-W14, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: Although much research has been devoted to the impact of seller structure on market outcomes, considerably less is known about the influence of buyer structure. We examine the impact of buyer concentration on the pricing of a monopolist. Markets with both two and four buyers achieve prices well below the monopoly price, attaining even competitive levels - sometimes even lower. Moreover, markets with only two buyers show significantly lower prices than those with four buyers. We design an additional pair of treatments to pinpoint the source of this difference. We attribute the lower prices in the two-buyer treatment to the monopolist pricing more cautiously when there are fewer buyers in order to avoid costly losses in sales. Buyer concentration is thus an effective source of countervailing power: even an unregulated monopolist that faces no possible threat of entry may price competitively.

Keywords: strategic buyer behavior; buyer concentration; monopoly; experimental economics (search for similar items in EconPapers)
JEL-codes: C91 D42 L4 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2002-04-01
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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