An Empirical Analysis of Countervailing Power in Business-to-Business Bargaining
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Pricing schemes in business-to-business (B2B) relationships reflect price discrimination and bargaining over rents. Bargaining outcomes are determined by upstream market power and countervailing buyer power downstream. This paper uses a panel of B2B transactions in the UK brick market to study B2B transaction prices. The empirical analysis identifies three effects on prices: nonlinear volume and freight absorption effects; countervailing power effects that arise from buyers’ local commercial significance; and competition effects that are due to the buyers’ local potential suppliers. And it shows that small buyers benefit more from competition than do large buyers because they are not constrained by the suppliers’ capacity.
KeywordsCountervailing power Bargaining Price discrimination Transaction data
JEL ClassificationD43 L11 L12 L14 L42 C23 C78
This paper is a non-structural companion paper to my structural work with Howard Smith and Yuya Takahashi. I am grateful for valuable comments and suggestions by Lawrence J. White and two anonymous referees, and for helpful discussions with Howard Smith and Yuya Takahashi, as well as with Richard Blundell, Kate Collyer, Yongmin Chen, Rachel Griffith, Dave Jevons, Sandeep Kapur, Nicola Mazzarotto, Arina Nikandrova, Hiroshi Ohashi, David Sappington, Philipp Schmidt-Dengler, Ron Smith, John Thanassoulis, Mike Whinston, and seminar audiences at Cambridge, the IFS, ESMT, HKUST, and UEA. I am indebted to executives of the UK brick industry for letting me use their data. I also thank the Economic and Social Research Council for financial support under Grant ES/M007421/1. The views expressed in this paper are the sole responsibility of the author.
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