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Buyer Power and the 'Waterbed Effect'Roman InderstUniversity of Frankfurt; Imperial College London Tommaso M. VallettiImperial College Business School; University of Rome II - Department of Financial and Quantitative Economics; Centre for Economic Policy Research (CEPR) January 2008 CEIS Research Paper No. 107 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.
Number of Pages in PDF File: 27 Keywords: buyer power, retail concentration JEL Classification: L11, L13 working papers seriesDate posted: March 31, 2008 ; Last revised: May 25, 2008Suggested CitationContact Information
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