Buyer Power and the “Waterbed Effect”

Roman Inderst and Tommaso Valletti

No 107, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We present a simple model where the growth of one downstream firm generates lower wholesale prices for this firm but higher wholesale prices for its competitors (the “waterbed effect”). We derive conditions for when, even though firms compete in strategic complements, this harms consumers. This is more likely if larger firms already obtain substantial discounts compared to their smaller competitors. Furthermore, the identified “waterbed effect” holds irrespective of whether a firm grows by acquisition or “organically” by becoming more efficient.

Pages: 27 pages
Date: 2008-07-10, Revised 2008-07-10
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (6)

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Journal Article: BUYER POWER AND THE ‘WATERBED EFFECT’ (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:rtv:ceisrp:107

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