Competition policy for buyer cartels, buying groups and other contractual restraints involving buyer power

This chapter evaluates competition policy toward buyer cartels and buying groups. It starts by defining the two categories. It then argues that despite some plausible theoretical arguments for buyer cartels their overall impact on the competitive process makes them a serious risk that should generally be avoided. In limited circumstances, such cartels may be deemed in the public interest, but if so, a public authority must closely regulate and oversee such activity. Buying groups, on the other hand, are likely to add to market efficiency and so should be allowed unless they incorporate such a large share of buying that they create an undue risk of buyer power. If a group must have a substantial share to achieve efficiency, it rules and conduct must be closely examined to avoid unnecessary risk to competition. In most instances, such levels of concentration are unnecessary to achieve the efficiency enhancing effects of buyer groups. Hence, such groups should not be allowed to exist. The chapter also briefly reviews the analysis of vertical restraints imposed by buyers on producers. Chapter 5 had addressed this topic as well. Strict controls over the creation of undue buyer power and buyer cartels will enhance the overall competitive process because this will avoid the creation of the kind of power that Chapters 5 and 6 showed to be difficult or impossible to regulation.