Buyer Power and Supplier Incentives

42 Pages Posted: 23 Oct 2002

See all articles by Roman Inderst

Roman Inderst

Goethe University Frankfurt

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE)

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Date Written: September 2002

Abstract

This Paper investigates how the formation of larger buyers affects a supplier's profits and, by doing so, his incentives to undertake non-contractible activities. We first identify two channels of buyer power, which allows larger buyers to obtain discounts. We subsequently examine the effects of buyer power on the supplier's incentives and social welfare. Contrary to some informal claims in the policy debate on buyer power, we find that the exercise of buyer power - even though reducing supplier's profits - may often increase a supplier's incentive to undertake welfare enhancing activities.

Keywords: buyer power, retailing, mergers

JEL Classification: C78, D43, L13

Suggested Citation

Inderst, Roman and Wey, Christian, Buyer Power and Supplier Incentives (September 2002). Available at SSRN: https://ssrn.com/abstract=342275

Roman Inderst (Contact Author)

Goethe University Frankfurt ( email )

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Germany
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HOME PAGE: http://www.wiwi.uni-frankfurt.de/en/departments/finance/lehrstuhl/prof-dr-roman-inderst/team

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49-211-81-15009 (Phone)
+49-211-81-15499 (Fax)

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