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On the unprofitability of buyer groups when sellers compete

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  • Jeon, Doh-Shin
  • Menicucci, Domenico

Abstract

We study how the formation of a buyer group affects buyer power when sellers compete and buyers operate in separate markets. Previous research (Inderst and Shaffer, 2007, and Dana, 2012) has considered a buyer group that can commit to an exclusive purchase and has found that the formation of a buyer group strictly increases buyer power unless buyers have identical preferences. In contrast, we assume that no commitment to exclusive purchases is possible. We find that the formation of a buyer group has no effect if each seller's cost function is concave. If it is strictly convex, the buyer group strictly reduces the buyers' total payoff as long as the Pareto-dominant equilibrium for sellers is played when a buyer group is formed.

Suggested Citation

  • Jeon, Doh-Shin & Menicucci, Domenico, 2019. "On the unprofitability of buyer groups when sellers compete," Games and Economic Behavior, Elsevier, vol. 115(C), pages 265-288.
    • Handle: RePEc:eee:gamebe:v:115:y:2019:i:c:p:265-288
    DOI: 10.1016/j.geb.2019.03.008
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    2. Dubois, Pierre & Lefouili, Yassine & Straub, Stéphane, 2021. "Pooled procurement of drugs in low and middle income countries," European Economic Review, Elsevier, vol. 132(C).
    3. Hugo Molina, 2024. "Buyer Alliances in Vertically Related Markets," Working Papers hal-03340176, HAL.

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    More about this item

    Keywords

    Buyer group; Buyer power; Competition in nonlinear tariffs; Discriminatory offers; Common agency;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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