Buyer Power and Supplier Incentives

Inderst, Roman; Wey, Christian

doi:10.2139/ssrn.473142

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Buyer Power and Supplier Incentives

WZB, Markets and Political Economy Working Paper No. SP II 2003-05

33 Pages Posted: 30 Nov 2003

See all articles by Roman Inderst

Christian Wey

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

There are 2 versions of this paper

Date Written: June 2003

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 on 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, Investments, Competition Policy

JEL Classification: D43, L13, L40

Suggested Citation: Suggested Citation

Inderst, Roman and Wey, Christian, Buyer Power and Supplier Incentives (June 2003). WZB, Markets and Political Economy Working Paper No. SP II 2003-05, Available at SSRN: https://ssrn.com/abstract=473142 or http://dx.doi.org/10.2139/ssrn.473142