Top PDF Buyer Power and Healthcare Prices

Buyer Power and Healthcare Prices

Buyer Power and Healthcare Prices

to dismiss these charges, it did not discuss whether there was evidence to support them. This is symptomatic. There is little evidence that health plans exercise monopsony[r]

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Buyer Market Power and Vertically Differentiated Retailers

Buyer Market Power and Vertically Differentiated Retailers

We compare our equilibrium results to two “no-Wal-Mart” retail configurations: monopoly and duopoly. This allows us to evaluate the effect of Wal-Mart’s entry (either by addition or substitution of a retailer) on: 1) consumer and producer welfare, and 2) the price and quality equilibrium levels. In the absence of a large retailer, the two conventional retailers set their quality at the same level and compete with each other in a standard Bertrand fashion. Though the profits for both retailers are zero, the wholesaler (as well as consumers) benefit from the intense price competition between retailers. In the presence of a large retailer, conversely, the degree of quality differentiation depends on the size of the discount (i.e. market power) obtained by the retailer: as the discount gets larger, the large retailer has a higher incentive to lower prices Buyer market power is measured by a discount rate negotiated between the manufacturer and the retailer, and assumed to be exogenous in our model. As opposed to earlier work, a key component of our model is that it allows downstream firms to compete not only in prices but also in quality: retailers can choose a different level of “service” (i.e., quality of the shopping experience).
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Brazil: Commodity Seller To Power Buyer

Brazil: Commodity Seller To Power Buyer

average from 2007 to 2010 also seem to be faltering as higher prices have eroded the purchasing power of consumers, who have had to strike off even some staple food items from their grocery lists. For instance, external factors such as the effects of droughts and floods pushed up the price of the humble tomato by more than 120% in a year. Food prices, one of the main components of the index that measures inflation, have risen due to the increase in freight costs after the government-run energy company Petrobras increased diesel and gasoline prices to fund its plans for offshore oil exploration. Under pressure from the government, the company had kept domestic fuel prices below the global level to keep inflation under check.
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The Evidence of Buyer Bargaining Power in The Stockholm Residential Real Estate Market

The Evidence of Buyer Bargaining Power in The Stockholm Residential Real Estate Market

As discussed earlier, another way to examine empirically the research question is to investigate the determinants of the bargaining outcome in single-family housing transactions. This is what Song (1995) did in his article. The basic idea was to explore whether housing attributes and household characteristics could explain the variation in the so-called discount ratio, which he defines as the difference between the asking price and transaction price divided by the asking price. Edelstein (1974) and Turnbull and Sirmans (1993) are examples of studies that use the concept of a discount ratio. The first hypothesis tested in Song (1995) concerns whether implicit hedonic prices relating to housing attributes are over or under valued by buyers and sellers. The second hypothesis is about whether the first-time buyer has an effect on the bargaining outcome. Song’s results indicate that first-time buyers do not bargain less than former-owner households do. However, a buyer’s income influences the bargaining results, together with the asking price. Both of these attributes influence the results in an explicitly positive way since the discount rate rises as income and the offer price increase. The real estate attributes do not affect the bargaining outcome, thus indicating that they are priced correctly in an initial stage of the selling process.
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Merger Efficiency and Welfare Implications of Buyer Power

Merger Efficiency and Welfare Implications of Buyer Power

Alternatively, Katz (1987) models buyer power as a retailer’s ability to integrate backwards by paying a fixed cost. When the retailer gets larger, it could reduce the average cost of its alternative supply option and thereby get a better price from the supplier. Using the approach of Katz (1987), Inderst and Valletti (2011) allow all competing retailers to have access to a costly outside option and analyze the implications of a buyer merger on the wholesale prices offered by the main supplier, on retail competition and on final prices They show that, since a buyer merger creates size asymmetry between the retailers, it leads to a lower wholesale price to the merged entity and higher wholesale prices to the other retailers, that is, waterbed effects. They find that waterbed effects are less significant when the fixed cost of the alternative supplier is lower. As a result, buyer power might increase the consumer surplus. This is found to be the case when the retail prices are strategic complements and the fixed cost of the alternative supplier is sufficiently low. Intuitively, in this
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Private labels, buyer power and competition policy

Private labels, buyer power and competition policy

We therefore conclude th a t the use of the countervailing buyer power merger defence is more complex than previously thought. A ntitrust au­ thorities should be more sceptical of any merger defence based upon such countervailing power, as a merger which appears to raise no competitive concerns due to the presence of such power can still result in anticom­ petitive effects and higher retail prices to consumers. On the other hand, we dem onstrate how some mergers which may appear problematic may not actually result in a substantial lessening of competition through an innovative application of the countervailing power idea to potential en­ trants. These results suggest th a t when this argument is used in a merger case practitioners must pay attention to the role of entry in constraining pricing in the retail market, and the ability of any potential entrants to similarly exercise countervailing power over the merged entity.
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10-04 "Buyer Power in U.S. Hog Markets: A Critical Review of the Literature"

10-04 "Buyer Power in U.S. Hog Markets: A Critical Review of the Literature"

Despite the rapid structural changes in the U.S. hog industry, the literature on buyer power in hog markets is quite limited. In this paper, we review the available literature, which has been generally presented as demonstrating that buyer power is not a significant problem. We find that interpretation to be poorly justified. Researchers have found well-documented evidence of market power on both the seller and the buyer sides of the market, though the studies have been less clear on the specific causes. Mirroring prevailing practices in Justice Department merger reviews, researchers have often discounted buyer power using methodologies more appropriate to seller power, then dismissed findings of seller power by pointing to offsetting “efficiency gains” from concentration. Yet such apparent efficiency gains in seller markets can include reductions in the prices concentrated firms pay for animals through their exercise of buyer power. We also raise the question of how buyer power in concentrated retail markets may compound the exercise of buyer power by packers. The paper concludes with a set of recommendations for further research, including the refinement of methodologies for the study of buyer power, and an assessment of proposed new USDA regulations on packer buying practices.
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Buyer Market Power in UK Food Retailing

Buyer Market Power in UK Food Retailing

the presence of market power. From this one can retrieve a measure of the aggregate conjectures representing the degree of market power in a specific market. In the approach followed here, we also employ exogenous shocks as a means to detect the potential for market power. At the other end is the empirical literature on the incidence of policy changes (such as tax changes) or other shocks since the incidence of taxes may differ in the presence of market power. Fuerstein (2002) and Delipalla and O’Donnell (2001) would be recent examples. The approach followed here relates to these empirical strategies in that we exploit the presence of exogenous shocks in order to identify the presence of market power based on a theoretical model of the incidence of shocks on both upstream and downstream prices. As we explain below, the detection of market power simply depends on how these shocks affect both sets of prices. While the simplicity of the approach does not allow us to retrieve an empirical estimate of the degree of market power the trade-off does circumvent some of the obstacles inherent in the estimation of structural econometric modelling and the difficulties associated with the interpretation of estimated conjectures.
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Buyer Power and Functional Competition for Innovation

Buyer Power and Functional Competition for Innovation

better terms in some speci…cations of the model, e.g., with the threat of imitation, the discount will not a¤ect marginal wholesale prices. When they can o¤er products of the same quality, small retailers will thus not be at a disadvantage. As we noted already, small retailers may, however, su¤er when the large retailer’s activity crowds out innovation by branded goods manufacturers, which is more likely when retail competition is intense. Then, the larger retailer will enjoy a competitive advantage from his private label products. A substantial fraction of the aforementioned growth in concentration in some market segments has been fuelled by the spread of private labels. In fact, the market share of private labels in European food retailing has risen signi…cantly, with now more than 40% in some countries such as the UK. 3 From the retailers’ perspective, cost savings in
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EXPLOITING BUYER POWER: LESSONS FROM THE BRITISH GROCERY TRADE

EXPLOITING BUYER POWER: LESSONS FROM THE BRITISH GROCERY TRADE

Details of the findings on the price differences paid by the main parties are shown in Table 7. Tesco generally secured the lowest prices, followed by Sainsbury, Asda, Somerfield, Safeway, and then Morrison. The other parties paid above average prices. Indeed, some of the price discrepancies among retailers are particularly wide. For example, expressed in terms of comparisons to the price paid by Tesco, a number of parties, notably Budgens, Netto, Waitrose, and Booth, paid approximately 10 percent more—a level which potentially placed them at a serious competitive disadvantage compared to Tesco and other major multiple operators. 67 Table 7 also shows each party’s respective market share. Here, it is possible to observe the close correlation between market shares and buying effectiveness. The extent of price differences among different parties supports the view that the retailer’s market share is an important factor in obtaining low prices from suppliers, whereby a high market share does not guarantee a low price but substantially increases the chances of obtaining one. In view of this, the buying- effectiveness/ market-share relationship could be expected to confer a significant cost advantage on the major multiple retailers that they could then use to undercut the prices of the smaller chains. This could allow such retailers to enter a “virtuous circle” in which using their cost advantage to undercut smaller chains allows them to gain further market share, thereby lowering their relative costs of supply still further and so offer a further cost advantage over small chains which can be exploited by again undercut- ting their retail prices to take yet more market share away from them,
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Buyer power in EU competition law : a boon or impediment to consumer welfare ?

Buyer power in EU competition law : a boon or impediment to consumer welfare ?

,  the  Commission  considers  that  buyer  power  may  have  either  beneficial  or  adverse  effects  on   consumers.  On  the  one  hand,  when  powerful  buyers  exercise  countervailing  power  and  pass  on  the   better  prices  and  terms  obtained  from  suppliers  to  consumers  downstream,  buyer  power  is  seen  as  a   positive  strength  for  consumers.  On  the  other  hand,  if  a  buyer  has  significant  market  power  in  the   upstream  buyer  market  combined  with  significant  market  power  in  the  downstream  seller  market,   savings  are  less  likely  to  be  passed  on  to  consumers.  In  such  a  case,  competition  concerns  may  arise.   Excessive   buyer   power   may   also   raise   competition   concerns   if   a   buyer   used   its   position   in   the   upstream   market   to   foreclose   (potential)   rivals   to   the   detriment   of   consumers. 136   In   addition,   the   Commission   points   out   that,   in   specific   circumstances,   the   exercise   of   buyer   power   may   induce   suppliers   to   invest   less   in   product   quality   and   innovation   due   to   the   low   profitability   of   such   investment.  This  is  hence  likely  to  adversely  affect  consumers  as  the  concept  of  consumer  welfare   encompasses  not  only  low  prices  but  also  diversity,  quality  and  innovation. 137  
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One-stop shopping behavior, buyer power, and upstream merger incentives

One-stop shopping behavior, buyer power, and upstream merger incentives

where ' m (w m ; ) and ' i (w ; ) denote the reduced pro…t functions of the suppliers in the …rst stage of the game. We assume that suppliers merge, whenever their merger incentives are non-negative. If all consumers are single shoppers, i.e. = 0, the wholesale prices do not depend on whether suppliers separate or merged. Accordingly, suppliers are indi¤erent whether to merge their businesses or not. In turn, if at least some consumers have one-stop shopping preferences separate suppliers obtain a higher wholesale price than merged suppliers. More precisely, the wholesale price negotiated with separate suppliers, i.e. w ; is increasing in the share of one-stop shoppers, i.e. ; while the wholesale price negotiated with a merged supplier, i.e. w m ; does not depend on the share of one-stop shoppers in population. This implies the following trade-o¤ separate suppliers have to deal with: increasing wholesale prices induce an increase of the suppliers’ share of the total pie, while the total pie itself is decreasing at the same time. Suppliers, therefore, bene…t from negotiating separately with the retailer as long as there are only few one-stop shoppers in population. 20 In turn, if the share of one-stop shoppers
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Buyer Power through Producer's Differentiation

Buyer Power through Producer's Differentiation

Several articles are devoted to the consequences of the balance of power between producers and retailers on retailers’ listing strategy and thus are directly related to our work. Avenel and Caprice (2006) show how a high quality producer may have an incentive to offer different contracts to sym- metric competing retailers in order that the latter specialize their offer: one of the retailers offers the high quality product while her competitor offers a low quality good supplied by a competitive fringe. This listing choice special- ization is imposed by the producer, when his market power is high enough, to improve his profits thanks to the downstream competition relaxation effect. Shaffer (2005) highlights the adverse effect of slotting allowances competition between producers on retailer’s listing choice. A producer may offer slotting allowances to secure his patronage in retailers’ shelves when the latter are capacity constrained (each retailer can only store one product while two prod- ucts are available in the market) to the detriment of another product offered by a competitive fringe. This strategy may thus harm consumer surplus. The paper by Inderst and Shaffer (2005) is also closely related to our work. They identify a new mechanism through which a horizontal merger between retailers can increase retailer’s buyer power. Before the merger, retailers are on separated markets and buy from two different manufacturers. After the merger, the new consolidated retailer may commit to a single sourcing strat- egy in order to increase her buyer power. Finally, Chen (2006) shows that when a retailer may choose the number of products’ variety she puts in her shelves (without capacity constraint) and bears a constant retail cost, her countervailing power lowers consumer prices but reduces product diversity. On the one hand, the monopoly distortion in price is reduced but on the other hand, the distortion in terms of variety of products is increased and consumers are always worse off.
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The welfare consequences of the exercise of buyer power

The welfare consequences of the exercise of buyer power

4.5 Although this discussion is presented primarily in terms of a monopsonist, as the only buyer in the market, the principles are readily applicable to situations where some buyers (either singly or jointly) recognise their ability to influence market prices. In such instances, three conditions appear necessary for the exercise of buyer power: first, that the buyers contribute to a substantial portion of purchases in the market; secondly, that there are barriers to entry into the buyer * s market; and thirdly, that the supply curve is upward sloping. Under these circumstances it is straightforward to apply the principles of oligopoly theory to model situations of oligopsony where strategic interaction occurs between a few buyers competing in a market - see for example the seminal analysis of Stackelberg (1934) and Fellner (1949). Similarly, the dominant firm model (Forchheimer, 1908) can be readily applied for consideration of dominant buyer behaviour, where the leading firm faces a competitive fringe of other buyers, eg: Blair and Harrison (1993, pp 49-51) and Veendorp (1987). For both 5 extensions, the welfare results translate directly. In the case of oligopsony, generally the greater the concentration of buyers then the greater is the distortion in factor price and quantity below the competitive level, other things being equal . Similarly, in a 6
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Interaction between buyer power in agricultural procurement and seller power in food retailing, and optimal allocation of anti-trust efforts

Interaction between buyer power in agricultural procurement and seller power in food retailing, and optimal allocation of anti-trust efforts

Another form of market power is seller power in food retailing. In food retail markets, given the increasing concentration, spatial distribution of consumers and stores, and store differentiation, food retailers may be able to use seller market power to influence prices charged to consumers. The national CR4 in food retail- ing increased from 16.8% in 1992 to 37.3% in 2011, and the average local CR4 in metropolitan areas was 72.3% in 2007 (U.S. Department of Agriculture, Economic Research Service 2007; 2012). Spatial distribution of consumers and retail stores al- lows a store to have market power over the consumers in vicinity (Benson and Faminow 1985; Walden 1990; Azzam 1999). Differentiated pricing and marketing strategies adopted by retailers may also improve their ability to influence retail prices (Varian 1980; Lal and Rao 1997; Pesendorfer 2002; Sexton et al. 2003; Boat- wright et al. 2004; Hosken and Reiffen 2004; Davis 2010; Volpe 2013). Market power and structure issues in agricultural procurement and food retailing in other countries are also examined and discussed in studies such as Declerck et al. (1999) on French beef industry, Farina et al. (2004) on Brazilian supermarket chains, Lloyd et al. (2009) on the UK food sector, and Digal (2010) on the Philippine poultry industry.
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Buyer power in food retailing

Buyer power in food retailing

In addition, collaboration and consolidation among retailers impedes one‘s ability to achieve a clear picture of the real levels of concentration. Retailers collaborate not only on a national level but equally across borders via buyer groups or alliances, such as EMD and AMS. The top seven European alliances, in combination with the top three retailers, are responsible for more than 50% of the food supplies within Europe. Furthermore, contracts between suppliers and retailers are no longer fixed on a long-term basis but rather determined through online exchanges and Internet- based auctions, where the contract is offered to those suppliers offering the lowest price. This can have major impacts upon suppliers‘ survival, as long-term contracts help to ensure that their investments are somewhat safe. This is in opposition to the current situation whereby producers compete for contracts on a short-term basis, and with an uncertain and potentially volatile future income, so too do they alter their in- vestment decisions. In addition they may feel pressured to reduce prices to levels be- low the cost of production and if experienced over a longer period may result in insol- vency. Alternatively, so as suppliers can remain within the market under such cir- cumstances, they may elect to reduce the quality of products to a level below stan- dards. While perhaps not noticed instantly by quality-control-agencies, this results in a degraded quality for consumers. 16
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Buyer Power in International Markets

Buyer Power in International Markets

Third, powerful buyers have profound e¤ects on international markets. In its regular assessment of price dispersion for goods and services inside the EU market, the EU Commission observes that price dispersions across mem- ber states are much more signi…cant for consumer goods than they are for industrial goods. It further notes that this is due in large part to ‘the bar- gaining power and e¢ ciency of wholesale and retail distributors’(European Commission, 2000). In other words, the di¢ culties for consumer prices to converge despite free trade and the implementation of the single market are attributed in part to the role of intermediaries. Similarly, Javorcik, Keller and Tybout (2006) report that the main e¤ect of Nafta on the Mexican soaps, detergents and surfactant industry is less due to the reduction in trade costs or to the entry of foreign manufacturers than to ‘the fundamental change in relationship’ between manufacturers and retailers once Walmex (Wal-Mart of Mexico) entered the market and exercised its bargaining power.
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Buyer Power and Supplier Incentives

Buyer Power and Supplier Incentives

Should the formation of larger and stronger buyers be of concern to antitrust au- thorities? According to the textbook model (e.g., Blair and Harrison 1993 or Scherer and Ross 1990, Chapter 14) a higher concentration among buyers leads to a strategic reduction in purchases with the aim of reducing prices. 4 This argument rests on a mirror image of the exercise of market power by sellers. A single price prevails at which all mar- ket transactions take place. Buyers (sellers) affect this price by strategically withholding demand (supply). 5 While this picture may be adequate for most final goods markets and also for some input markets in which standard commodities are traded, it seems to be less suitable to describe the interaction between buyers and suppliers in our previous 1 Although concentration in the US grocery retail market is low at a national level, there have been
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Buyer Power in International Markets

Buyer Power in International Markets

Not surprisingly, free trade tends to lead to more competition and lower retail prices given exclusive contracts in autarky. This is especially true when retailers are poor substitutes, since in this case retail market structure changes from a monopoly to a duopoly as retailers switch to non-exclusive contracts. Free trade also leads to more competition and lower prices for con- sumers when contracts are non-exclusive in both autarky and free trade. The reason is that in autarky each retailer internalizes the effect of his wholesale price on the single manufacturer. Specifically, reducing the wholesale price means that the retailer has to compensate the manufacturer for lost sales to the rival retailer. This keeps wholesale prices and, therefore, retail prices high. In free trade, each retailer buys from a different manufacturer. There is thus no need to compensate the supplier for any lost sales to the rival retailer. This makes it more attractive to lower the wholesale price in order to take market share away from the rival retailer, reducing retail prices in the process.
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The origins of power in buyer–seller relationships

The origins of power in buyer–seller relationships

Notably, and in line with our first research question, a range of organizational, individual and relational variables representing the origins of power were identified by participants. Power was seen consistently by all the focus groups as multi-dimensional, even in situations of market dominance. Some of the focus groups represented market- leader/large purchaser organizations. They recognized the power afforded to them through their market position, spend and organizational reputation, yet the groups concluded that the potential to influence, “doesn’t only hang on our purse-strings”. Illustrating the integrated view of power, participants agreed that good commercial deals could be leveraged through relationships, knowledge and motivation as well as spend or market position. A buying manager of a multinational organization provided a detailed example of a strong economic position not always resulting in superior commercial outcomes. Following a competitive tendering process for a major IT contract, they believed they had achieved the best possible solution, largely based on the size and term of the contract. Built into the agreement was an obligation for an independent in- sector benchmarking exercise to be completed after 12months that revealed that the buying organization was paying higher than average pricing despite the high contract spend. On investigation, the high prices were attributed to the supplier managing third- party equipment as part of the contract; thus any efforts to reduce costs required the buying organization to commit to equipment replacement, attracting additional capital costs and increasing the buyer’s dependency on the incumbent supplier.
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