Small Buyers

11 Pages Posted: 5 Apr 2009

See all articles by Chris Doyle

Chris Doyle

London School of Economics & Political Science (LSE) - Department of Economics

Date Written: April 4, 2009

Abstract

We develop a model of retail competition and negotiations with an upstream supplier for several firms of different sizes. Contrary to existing thinking, we demonstrate that the larger a buyer the less countervailing power he possesses over the supplier. The reason for this is that a buyer's outside option - the ability to integrate backwards - becomes proportionately weaker as he grows in size as self-production is characterised by diseconomies of scale. This result emphasises that any analysis of countervailing power must go beyond a simple examination of a buyer's size, and must instead fully investigate the relative bargaining positions of suppliers and buyers.

Keywords: Buyer Power, Countervailing Power

JEL Classification: L14, L25, L40

Suggested Citation

Doyle, Chris, Small Buyers (April 4, 2009). Available at SSRN: https://ssrn.com/abstract=1373040 or http://dx.doi.org/10.2139/ssrn.1373040

Chris Doyle (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

United Kingdom

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