This Paper considers the competition effects of differential buyer
power. The central question addressed is whether the increasing buying
power of big retail chains can harm competition to the extent that it makes
consumers worse off. This possibility runs counter to the often-made
presumption that increasing retail-buyer power serves to countervail
supplier power, allowing retailers to obtain increased discounts that are then
(at least in part) passed on to consumers through lower retail prices.
However, with retailers differing in their ability to exercise buyer power,
there is the possibility of a "waterbed effect," whereby better terms for
more powerful buyers lead to a worsening of the terms of supply for less
powerful buyers, which in turn may lessen downstream (i.e., retail)
competition and harm consumer welfare. This Paper offers guidance on the
market mechanisms and precise circumstances that may give rise to such a
waterbed effect and the extent to which this may distort downstream
competition and impact on consumers.
Description
The Future of Monopoly and Monopolization Symposium
