Buyer power: its definition and measurement

This chapter provides an analysis of buyer power and its measurement. It starts by pointing out that for competition policy the distinction between ‘monopsony’ and ‘buyer power’ is only a matter of degree. A firm possessing either form of power can engage in abusive conduct. Hence, the appropriate focus is on the potential for abuse rather than some abstract label. Buyer power can be usefully separated into two categories. The first involves situations where the buyer is obtaining inputs or components for its product. The second situation involves the distribution of branded consumer goods. The sources of power in the two situations are different and the structural thresholds of concern are also different. Branded good producers need a wide range of outlets and so can be more vulnerable to exploitation of buyer power by multiple buyers than component producers who only need to have sufficient options for sales. The chapter concludes by identifying three factors that increase the potential for buyer power exploitation: the buyer is usually the key decider with respect to both purchase in general and from whom to purchase, arbitrage is much less feasible for producers relative to the options that buyers have, and the nature of buying markets makes self-correction by the market of buyer power inherently more difficult.