Elsevier

Games and Economic Behavior

Volume 115, May 2019, Pages 265-288
Games and Economic Behavior

On the unprofitability 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.

JEL classification

D4
K21
L41
L82

Keywords

Buyer group
Buyer power
Competition in nonlinear tariffs
Discriminatory offers
Common agency