Vertical Bargaining and Retail Competition: What Drives Countervailing Power?

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Abstract

This article investigates the effects of changes in market concentration on the equilibrium prices in a supply chain. Results are derived from a theoretical model of bilateral bargaining between upstream and downstream firms which allows for general forms of demand and retail competition. Whether countervailing buyer power arises, in the form of lower input prices following greater concentration downstream, depends on the pass‐through rate of input prices to retail prices. Countervailing buyer power generally does not translate into lower retail prices because of heightened market power at the retail level.
Original languageEnglish
JournalThe Economic Journal
Volume128
Issue number614
Pages (from-to)2380-2413
Number of pages34
ISSN0013-0133
DOIs
Publication statusPublished - Sep 2018
Externally publishedYes

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