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Buyer Concentration As A Source Of Countervailing Power: Evidence From Experimental Posted-Offer Markets

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  • Jim Engle-Warnick
  • Bradley Ruffle

Abstract

We experimentally examine the impact of buyer concentration on the pricing of a monopolist. In our experimental markets, a monopolist faces either two or four buyers. Markets with two buyers achieve significantly lower prices, sometimes below competitive levels, than those with four buyers. We design an additional pair of treatments to pinpoint the source of this difference. We attribute the lower pries in the two-buyer treatment to the monopolist pricing more cautiously when there are fewer buyers in order to avoid costly losses in sales. Buyer concentration may thus be an elective source of countervailing power.

Suggested Citation

  • Jim Engle-Warnick & Bradley Ruffle, 2006. "Buyer Concentration As A Source Of Countervailing Power: Evidence From Experimental Posted-Offer Markets," Departmental Working Papers 2006-12, McGill University, Department of Economics.
    • Handle: RePEc:mcl:mclwop:2006-12
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    Cited by:

    1. van Damme, E.E.C. & Larouche, P. & Müller, W., 2006. "Abuse of a Dominant Position : Cases and Experiments," Discussion Paper 2006-020, Tilburg University, Tilburg Law and Economic Center.
    2. Bradley J. Ruffle, 2005. "Buyer Countervailing Power: A Survey of Experimental Evidence," Working Papers 0512, Ben-Gurion University of the Negev, Department of Economics.
    3. Hans-Theo Normann & Bradley J. Ruffle & Christopher M. Snyder, 2007. "Do buyer-size discounts depend on the curvature of the surplus function? Experimental tests of bargaining models," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 747-767, September.
    4. Kai A. Konrad & Florian Morath & Wieland Müller, 2014. "Taxation and Market Power," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(1), pages 173-202, February.
    5. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
    6. 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.
    7. Lisa Bruttel, 2014. "Buyer power in large buyer groups?," TWI Research Paper Series 92, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    8. Jim Engle-Warnick & Bradley Ruffle, 2006. "The Strategies Behind Their Actions: A Method To Infer Repeated-Game Strategies And An Application To Buyer Behavior," Departmental Working Papers 2005-04, McGill University, Department of Economics.
    9. Sanjib Bhuyan, 2008. "Clarke, Roger, Stephen Davies, Paul Dobson & Michael Waterson. Buyer Power and Competition in European Food Retailing . Cheltenham (UK): Edward Elgar, 2002. xi+203 pp, ISBN 1-84064-685-3, $75," Agribusiness, John Wiley & Sons, Ltd., vol. 24(1), pages 141-143.
    10. Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.

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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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