On the profitability of buyer groups when sellers compete

Abstract

We study how the formation of a buyer group affects buyer power when sellers compete and buyers operate in separate markets. Previous research (Inderst and Shaffer, 2007, and Dana, 2012) has considered a buyer group that can commit to an exclusive purchase and has found that the formation of a buyer group strictly increases buyer power unless buyers have identical preferences. In contrast, we assume that no commitment to exclusive purchases is possible. We find that the formation of a buyer group has no effect if each seller's cost function is concave. If it is strictly convex, the buyer group strictly reduces the buyers' total payoff as long as the Pareto-dominant equilibrium for sellers is played when a buyer group is formed.

Keywords

Replaces

Doh-Shin Jeon, and Domenico Menicucci, “Buyer Group and Buyer Power When Sellers Compete”, TSE Working Paper, n. 14-543, November 26, 2014, revised November 2017.

Reference

Doh-Shin Jeon, and Domenico Menicucci, “On the profitability of buyer groups when sellers compete”, Games and Economic Behavior, vol. 115, May 2019, pp. 265–288.