Abstract

http://ssrn.com/abstract=1542166
 


 



Buyer Market Power and Vertically Differentiated Retailers


Shinn-Shyr Wang


University of Massachusetts at Amherst - Isenberg School of Management

Christian Rojas


University of Massachusetts at Amherst

Nathalie Lavoie


University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

January 25, 2010

University of Massachusetts Amherst Department of Resource Economics Working Paper No. 2010-1

Abstract:     
We consider a model of vertical competition where downstream firms (retailers) purchase an upstream input from a monopolist and are able to differentiate from each other in terms of quality. Our primary focus is to study the effects of introducing a large retailer, such as a Wal-Mart Supercenter, that is able to lower wholesale prices (i.e. buyer market power). We obtain two main results. First, the store with no buyer market power responds to the presence of the large retailer by increasing its quality, a finding that is consistent with recent efforts by traditional retailers to enhance shoppers’ buying experience (i.e. quality). Second, the presence of a large retailer causes consumer welfare to increase. There are, however, two reasons for the increase in consumer welfare: consumers gain from the large retailer’s low price (because the upstream discount is partially passed on to the retail price) as well as from the high quality level offered by the traditional retailer. Contrary to the conventional wisdom most of the consumer welfare gains seem due to the latter. The intuition for this result is that price competition softens substantially as a result of firms’ quality differentiation. We also investigate the effects of buyer market power on retail and wholesale prices as well as on producer welfare.

Number of Pages in PDF File: 34

Keywords: buyer market power, vertical differentiation, Wal-Mart

JEL Classification: D43, L13, L81, M31, Q13

working papers series





Download This Paper

Date posted: February 4, 2010  

Suggested Citation

Wang, Shinn-Shyr and Rojas, Christian and Lavoie, Nathalie, Buyer Market Power and Vertically Differentiated Retailers (January 25, 2010). University of Massachusetts Amherst Department of Resource Economics Working Paper No. 2010-1. Available at SSRN: http://ssrn.com/abstract=1542166 or http://dx.doi.org/10.2139/ssrn.1542166

Contact Information

Shinn-Shyr Wang (Contact Author)
University of Massachusetts at Amherst - Isenberg School of Management ( email )
Amherst, MA 01003-4910
United States
Christian Rojas
University of Massachusetts at Amherst ( email )
Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States
Nathalie Lavoie
University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )
Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States
413-545-5713 (Phone)
413-545-5853 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 894
Downloads: 94
Download Rank: 168,364

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 1.203 seconds