Wednesday, November 6, 2019
Hugo Molina, KU Leuven - Faculty of Business and Economics (FEB) writes on Buyer Alliances in Vertically Related Markets.
ABSTRACT: This article examines the formation of buyer alliances that negotiate wholesale prices with manufacturers on behalf of large retailers in the French food retail sector. Using pre- and post-alliances data on household purchases of bottled water, I develop a structural model of bilateral oligopoly to estimate changes in firms’ bargaining power in the vertical chain. Results provide evidence of a countervailing buyer power effect that reduces retail prices by roughly 7%. Exploring determinants of buyer power, I find that changes in firms’ bargaining ability play an important role in the countervailing force exerted by buyer alliances which, absent this effect, may harm retailers.