Buyer Alliances in Vertically Related Markets
66 Pages Posted: 20 Sep 2019 Last revised: 5 Aug 2020
Date Written: September 12, 2019
Supplement is available at: https://ssrn.com/abstract=3452506
Alliances of buyers to negotiate input prices with suppliers are commonplace. Using pre- and post-alliances data on household purchases of bottled water, I develop a structural model of bilateral oligopoly to estimate the effects of alliances formed by retailers on their bargaining power vis-à-vis manufacturers and retail prices paid by consumers. Results provide evidence of a countervailing buyer power effect that reduces retail prices by roughly 7%. Exploring determinants of buyer power, I find that changes in retailers’ bargaining ability play an important role in the countervailing force exerted by buyer alliances which, absent this effect, would have harmed retailers.
Keywords: Bilateral oligopoly, Countervailing buyer power, Bargaining, Antitrust policy
JEL Classification: C78, D43, L11, L13, L14, L41, L81
Suggested Citation: Suggested Citation