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Buyer groups as strategic commitments

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  • Dana, James D.

Abstract

Buyer cooperatives, buyer alliances, and horizontal mergers are often perceived as attempts to increase buyer power. In contrast to prior research emphasizing group size, I show that even small buyer groups composed of buyers with heterogeneous preferences can increase price competition among rival sellers by committing to purchase exclusively from one seller. Without transfer payments, at least one buyer group exists for each pair of sellers and buyer groups membership is chosen to achieve indifference between the two sellers. With transfer payments, and just two sellers, the grand coalition is a coalition-proof subgame perfect equilibrium (CP-SPNE), though equilibria with arbitrarily many buyer groups also exist. With three sellers (and with more sellers when the distribution of buyers is symmetric), a CP-SPNE always exists, all coalition-proof equilibria are payoff equivalent and have at least one buyer group for each pair of firms, so the grand coalition is not an equilibrium.

Suggested Citation

  • Dana, James D., 2012. "Buyer groups as strategic commitments," Games and Economic Behavior, Elsevier, vol. 74(2), pages 470-485.
  • Handle: RePEc:eee:gamebe:v:74:y:2012:i:2:p:470-485
    DOI: 10.1016/j.geb.2011.08.014
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    More about this item

    Keywords

    Buyer groups; Buyer alliances; Buyer power; Strategic commitment; Coalition-proof equilibria; Coalition formation; Horizontal mergers;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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