Faculty of Economics and Business Administration Publications Database

Countervailing Power and Dynamic Efficiency

Wey, Christian
Volume: 9
Number: 4
Pages: 702 - 720
Month: August
ISSN-Print: 1542-4766
Link External Source: Online Version
Year: 2011
Abstract: This paper studies the impact of buyer power on dynamic efficiency. We consider a bargaining model in which buyer power arises endogenously from size and may impact on a supplier’s incentives to invest in lower marginal cost. We challenge the view frequently expressed in policy circles that the exercise of buyer power stifles suppliers’ incentives. Instead, we find that the presence of larger buyers keeps a supplier “more on his toes” and induces him to improve the competitiveness of his offering, in terms of both price and quality, relative to buyers’ alternative options.