Countervailing Power and Consumer Prices

Dobson, Paul; Waterson, Michael

doi:10.1111/j.0013-0133.1997.167.x

Cited by 248 publications

(184 citation statements)

References 14 publications

Supporting

Mentioning

166

Contrasting

Unclassified

Order By: Relevance

“…Cowan (2007) illustrates the role of demand curvature in the context of third-degree price discrimination where the demand function in the weak and the strong markets differ by an additive scalar. 6 Our finding is in a similar spirit in the sense that the curvature properties of upstream and downstream demand are crucial in understanding the effect of a downstream merger on the input price. It is tempting to focus on a class of demand functions with a particular curvature property, say, constant elasticity of slope.…”

Section: Proposition 1 a Downstream Merger Reduces (Increases) The Insupporting

confidence: 58%

“…Also, Symeonidis (2010) shows that a merger between downstream producers may raise consumer surplus and overall welfare when competition is in quantity. 2 The importance of countervailing power (Galbraith, 1952) has been analyzed in models that consist of one manufacturer and a number of retailers (von Ungern-Sternberg, 1996; Dobson and Waterson, 1997;Chen, 2003). In von Ungern-Sternberg and Dobson and Waterson, unit retail prices are determined by manufacturer-retailer bargaining and symmetric retailers compete among themselves.…”

Section: Relationship To the Literaturementioning

confidence: 99%

See 1 more Smart Citation

Horizontal Mergers in the Presence of Vertical Relationships

Ghosh¹,

Morita

Wang

2014

SSRN Journal

View full text Add to dashboard Cite

We study welfare effects of horizontal mergers under a successive oligopoly model and find that downstream mergers can increase welfare if they reduce input prices. The lower input price shifts some input production from costinefficient upstream firms to cost-efficient ones. Also, the lower input price makes upstream entry less attractive, reduces the number of upstream entrants, and decreases their average costs in the presence of fixed entry costs. We identity necessary and sufficient conditions for a reduction in input prices and welfare-improving horizontal mergers under a general demand function. Qualitative nature of our findings remains unchanged for upstream mergers.

show abstract

Section: Proposition 1 a Downstream Merger Reduces (Increases) The Insupporting

confidence: 58%

Section: Relationship To the Literaturementioning

confidence: 99%

Horizontal Mergers in the Presence of Vertical Relationships

Ghosh¹,

Morita

Wang

2014

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…The theoretical model presented here is an extension of their model, and it is found that their main results extend to a more general setting with several downstream firms and unobservable contracts. 6 We also claim generalizability beyond the finding for our specific theoretical model tailor-made to the Norwegian egg market. We argue that this might happen with several models that include non-linear contracts between upstream and downstream firms.…”

Section: Introductionmentioning

confidence: 53%

Upstream Merger in a Successive Oligopoly: Who Pays the Price?

2013

View full text Add to dashboard Cite

This study develops and uses a successive oligopoly model, with an unobservable non-linear tariff between upstream and downstream firms, to analyze the possible anti-competitive effects of an upstream merger. We find that an upstream merger may lead to higher average prices paid by downstream firms, but that there is no change in the prices paid by consumers. The model is tested empirically on data for an upstream merger in the Norwegian food sector (specifically, the market for eggs). Consistent with the theoretical predictions of the model, we find that the merger had no effect on consumer prices, but led to higher average prices from the downstream to the upstream firm.

show abstract

“…However, we consider multiple bilateral negotiations between an upstream manufacturer and two retailers that compete in the downstream market, where the bargaining externality results from the demand re-allocation of the comparison 3 Several papers examine the effects of bargaining in markets (e.g., Horn and Wolinsky 1988, Dukes et al 2006, Chen et al 2008). Dobson and Waterson (1997) analyze the effect of retail concentration on channel bargaining, while Shaffer (2001) considers channel efficiency when multi-product retailers bargain bilaterally with upstream parties. 4 The effects of product non-specifiability in a bilateral distribution relationship have been addressed in Iyer and Villas-Boas (2003) and analyzed in more general terms in the incomplete contracting literature (Grossman and Hart 1983, Hart and Moore 1988, 1990, Aghion et al 1994.…”

Section: Related Researchmentioning

confidence: 99%

Multilateral Bargaining and Downstream Competition

Guo

Iyer

2013

Marketing Science

View full text Add to dashboard Cite

We examine multilateral bargaining in vertical supply relationships which involve an upstream manufacturer who sells through two competing retailers to end consumers. In these relationships the negotiations are inter-dependent and a bargaining externality may arise across the retailers. In addition, the timing by which the manufacturer negotiates with the retailers becomes important.The manufacturer may negotiate simultaneously with the retailers or sequentially with one retailer at a time. In simultaneous bargaining the retailers negotiate without knowing if an agreement has been reached in the other retail channel, whereas in sequential bargaining the retailer in the second negotiation is able to observe whether an agreement was reached in the first negotiation. This observability of the existence of a prior agreement in the case of sequential negotiations can endogenously affect the bargaining externality. We show that simultaneous bargaining is optimal for the manufacturer when the retail prices (and profitability) are similar, while sequential bargaining is preferred when the dispersion in the retail prices is sufficiently large. As a result of ex post renegotiations, the manufacturer may strategically stock out the less profitable retailer who charged a relatively low retail price, and exclusively supply only the retailer who charged a relatively high retail price and maintain high channel profitability. Moreover, ex post multilateral bargaining can buffer downstream competition and thus lead to positive retail profits even in markets that are close to perfect competition.

show abstract

Countervailing Power and Consumer Prices

Cited by 248 publications

References 14 publications

Horizontal Mergers in the Presence of Vertical Relationships

Horizontal Mergers in the Presence of Vertical Relationships

Upstream Merger in a Successive Oligopoly: Who Pays the Price?

Multilateral Bargaining and Downstream Competition

Contact Info

Product

Resources

About