Buyer Group and Buyer Power When Sellers Compete

43 Pages Posted: 2 Jan 2018

See all articles by Doh-Shin Jeon

Doh-Shin Jeon

Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR)

Domenico Menicucci

Universita' degli Studi di Firenze

Date Written: December 2017

Abstract

We study how buyer group affects buyer power when sellers compete with non-linear tariffs and buyers operate in separate markets. In the baseline model of two symmetric sellers and two symmetric buyers, we characterize the set of equilibria under buyer group, the set without buyer group and compare both. We find that the interval of each buyer's equilibrium payoffs without buyer group is a strict subset of the interval under buyer group if each seller's cost function is strictly convex, whereas the two intervals are identical if the cost function is concave. Our result implies that buyer group has no effect when the cost function is concave. When it is strictly convex, buyer group strictly reduces the buyers' payoff as long as, under buyer group, we select the Pareto-dominant equilibrium in terms of the sellers' payoffs. We extend this result to asymmetric settings with an arbitrary number of buyers.

Keywords: Buyer Group, Buyer Power, Common Agency, Competition in Non-linear Tariffs, Discriminatory Offers

JEL Classification: D4, K21, L41, L82

Suggested Citation

Jeon, Doh-Shin and Menicucci, Domenico, Buyer Group and Buyer Power When Sellers Compete (December 2017). CEPR Discussion Paper No. DP12547, Available at SSRN: https://ssrn.com/abstract=3095597

Doh-Shin Jeon (Contact Author)

Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Domenico Menicucci

Universita' degli Studi di Firenze ( email )

via delle pandette 9
Firenze, 50127
Italy
+39-055-4374666 (Phone)
+39-055-4374913 (Fax)

HOME PAGE: http://www.dmd.unifi.it/index.php?loc=personal&id=d.menicucci

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