IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/9526.html
   My bibliography  Save this paper

Dynamic Countervailing Power under Public and Private Monitoring

Author

Listed:
  • Bhaskar, Venkataraman

Abstract

We examine buyer strategic power in the model of dynamic Bertrand-Edgeworth competition. Two sellers with a limited inventory sell to a single buyer, who has a consumption opportunity in each period. The market power of the sellers is offset by the strategic power of the buyer. By not consuming in any period, the buyer can destroy a unit of demand, thereby intensifying future price competition. If transactions are publicly observed, we find that that a strategic buyer can do significantly better than non-strategic buyers; strategic power may also give rise to inefficiencies. However, if an agent only perfectly observes those transactions in which he is directly involved, and imperfectly observes other transactions, the strategic power of the buyer is reduced, and in some cases, may be completely eliminated. This highlights the sharp discontinuity between the equilibrium outcomes between perfect and imperfect monitoring.

Suggested Citation

  • Bhaskar, Venkataraman, 2013. "Dynamic Countervailing Power under Public and Private Monitoring," CEPR Discussion Papers 9526, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9526
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP9526
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, vol. 8(2), pages 271-280.
    2. Vettas, Nikolaos & Biglaiser, Gary, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.
    3. Roger Clarke & Stephen Davies & Paul Dobson & Michael Waterson, 2002. "Buyer Power and Competition in European Food Retailing," Books, Edward Elgar Publishing, number 2405.
    4. Morgan, John & Vardy, Felix, 2007. "The value of commitment in contests and tournaments when observation is costly," Games and Economic Behavior, Elsevier, vol. 60(2), pages 326-338, August.
    5. Giovanni Maggi, 1999. "The Value of Commitment with Imperfect Observability and Private Information," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 555-574, Winter.
    6. James J. Anton & Dennis A. Yao, 1992. "Coordination in Split Award Auctions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 681-707.
    7. James J. Anton & Dennis A. Yao, 1989. "Split Awards, Procurement, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 538-552, Winter.
    8. Cabral, Luis M B & Riordan, Michael H, 1994. "The Learning Curve, Market Dominance, and Predatory Pricing," Econometrica, Econometric Society, vol. 62(5), pages 1115-1140, September.
    9. Bergemann, Dirk & Valimaki, Juuso, 2006. "Dynamic price competition," Journal of Economic Theory, Elsevier, vol. 127(1), pages 232-263, March.
    10. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
    11. Bhaskar, V., 2009. "Commitment and observability in a contracting environment," Games and Economic Behavior, Elsevier, vol. 66(2), pages 708-720, July.
    12. Christopher M. Snyder, 1996. "A Dynamic Theory of Countervailing Power," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 747-769, Winter.
    13. Marc Dudey, 1992. "Dynamic Edgeworth-Bertrand Competition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1461-1477.
    14. Roman Inderst, 2008. "Single sourcing versus multiple sourcing," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 199-213, March.
    15. von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
    16. Tracy R. Lewis & Huseyin Yildirim, 2002. "Managing Dynamic Competition," American Economic Review, American Economic Association, vol. 92(4), pages 779-797, September.
    17. Snyder, Christopher M., 1998. "Why do larger buyers pay lower prices? Intense supplier competition," Economics Letters, Elsevier, vol. 58(2), pages 205-209, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vettas, Nikolaos & Biglaiser, Gary, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.
    2. James J. Anton & Gary Biglaiser & Nikolaos Vettas, 2014. "Dynamic Price Competition With Capacity Constraints And A Strategic Buyer," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(3), pages 943-958, August.
    3. Sara Fisher Ellison & Christopher M. Snyder, 2010. "Countervailing Power In Wholesale Pharmaceuticals," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 32-53, March.
    4. 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.
    5. Chris Doyle & Martijn Han, 2014. "Cartelization Through Buyer Groups," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(3), pages 255-275, May.
    6. Jeon, Doh-Shin & Menicucci, Domenico, 2014. "Buyer Group and Buyer Power When Sellers Compete," TSE Working Papers 14-543, Toulouse School of Economics (TSE), revised Nov 2017.
    7. Brishti Guha, 2017. "Costly Leader Games with a Probabilistically Non-Strategic Leader," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-14, June.
    8. Marvel, Howard P. & Yang, Huanxing, 2008. "Group purchasing, nonlinear tariffs, and oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1090-1105, September.
    9. Stéphane Caprice & Vanessa von Schlippenbach, 2008. "Competition policy in a concentrated and globalized retail industry," Post-Print hal-02656654, HAL.
    10. Fabian Bergès & Claire Chambolle, 2009. "Threat of Exit as a Source of Bargaining Power," Recherches économiques de Louvain, De Boeck Université, vol. 75(3), pages 353-368.
    11. Jose Alcalde & Matthias Dahm, 2016. "Proportional payoffs in legislative bargaining with weighted voting: a characterization," Discussion Papers 2016-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    12. Battigalli, Pierpaolo & Fumagalli, Chiara & Polo, Michele, 2007. "Buyer power and quality improvements," Research in Economics, Elsevier, vol. 61(2), pages 45-61, June.
    13. Armel Jacques, 2019. "Les enjeux du rachat de Vindémia : quelques éléments de théorie économique," Post-Print hal-03546561, HAL.
    14. Tanja Hörtnagl & Rudolf Kerschbamer, 2014. "How the Value of Information Shapes the Value of Commitment Or: Why the Value of Commitment Does Not Vanish," Working Papers 2014-03, Faculty of Economics and Statistics, Universität Innsbruck.
    15. Arozamena, Leandro & Weinschelbaum, Federico & Wolfstetter, Elmar G., 2018. "Procuring substitutes with (fine-tuned) first-price auctions," Economics Letters, Elsevier, vol. 171(C), pages 115-118.
    16. Raff, Horst & Schmitt, Nicolas, 2009. "Buyer power in international markets," Journal of International Economics, Elsevier, vol. 79(2), pages 222-229, November.
    17. Alcalde, José & Dahm, Matthias, 2019. "Dual sourcing with price discovery," Games and Economic Behavior, Elsevier, vol. 115(C), pages 225-246.
    18. Stuart V. Craig & Matthew Grennan & Ashley Swanson, 2021. "Mergers and marginal costs: New evidence on hospital buyer power," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 151-178, March.
    19. David Davis, 2014. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 121-138, September.
    20. Christoffel Grechenig & Martin Kolmar, 2011. "The State’s Enforcement Monopoly and the Private Protection of Property," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2011_24, Max Planck Institute for Research on Collective Goods.

    More about this item

    Keywords

    Dynamic games; Imperfect monitoring; Strategic buyer; Bertrand-edgeworth competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:9526. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.