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Department of Economics, University of Bergen Working Papers in Economics, Department of Economics, University of Bergen

No 01/12:
Buyer power and exclusion in vertically related markets

Tommy Staahl Gabrielsen () and Bjørn Olav Johansen ()

Abstract: We explore how the incentives for exclusion, both in upstream and downstream vertical markets, are related to the bargaining position of suppliers and retailers. We consider a model with a dominant upstream manufacturer and a competitive fringe of producers of imperfect substitutes offering their products to two differentiated downstream retailers. In this model we contrast the equilibrium outcome in two alternative situations. The first one is when the dominant supplier holds all the bargaining power, and this is compared with the outcome when the retailers have all the bargaining power. We show that exclusion occurs when interbrand and intrabrand competition is strong. Moreover, in contrast to the received literature, we find that when retailers have buyer power, this enhances welfare compared to when the manufacturer holds all the bargaining power.

Keywords: exclusive dealing; exclusive purchasing; exclusive selling; buyer power; com-petition; vertical restraints; (follow links to similar papers)

JEL-Codes: L40; L42; (follow links to similar papers)

115 pages, January 31, 2012

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