On Vertical Market Structure and Buyer Countervailing Power

Posted by D. Daniel Sokol

Xu-liang WU, Center for Industrial and Business Organization,DUFE,China provides thoughts On Vertical Market Structure and Buyer Countervailing Power.

ABSTRACT: The paper redefines different types of vertical market structure, such as double monopoly, bilateral monopoly, and two-sided monopoly. The core issue can be stated as follows: When there is bilateral monopoly, what are the differences between two-sided monopoly and one-sided monopoly as far as welfare consequences of retailers’ rising buyer power are concerned. The results show that in tow-sided monopoly situation, from consumer welfare perspective, the results of vertical integration are better than the results of vertical separation, whereas in one-sided monopoly situation, the results of vertical separation are better than the results of vertical integration, so the vertical market structure of one-sided monopoly or one-sided competition effectively overcomes double marginalization problem, to counter the forces at this time the buyer countervailing power hypothesis is somewhat reasonable. Taking Inter-period factor into account, this conclusion is even more credible.