Abstract
The article details the increase in buyerconcentration that has occurred throughout themanufacturing sector in recent years and explores itseffects on manufacturers' profitability. The articledevelops a new firm-level data set derived fromSecurities and Exchange Commission (SEC) Form 10-Ksubmissions to explore this topic among 218 firms in19 industries. The article's econometric resultsconflict with economic theory's prediction thatgreater buyer concentration is likely to be associatedwith lower seller profits principally in oligopolisticindustries. To the contrary, the results suggest thatbuyer concentration reduces profitability primarily incompetitive rather than oligopolistic industries.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Block, Sandra (1996) ‘There's a Right Time to Ax the Investment Axiom’, USA Today, International Edition, July 22, 6A.
Bradburd, Ralph M. (1982) ‘Price-Cost Margins in Producer Goods Industries and the “Importance of Being Unimportant” ‘, Review of Economics and Statistics, LXIV, 405–412.
Connor, John M., Richard T. Rogers, and Vijay Bhagavan (1996) ‘Concentration Change and Countervailing Power in the U.S. Food Manufacturing Industries’, Review of Industrial Organization, 11, 473–492.
Council of Economic Advisers (1998) Economic Report of the President 1998, Washington, D.C.
Cowley, Peter R. (1986) ‘Business Margins and Buyer/Seller Power’, Review of Economics and Statistics, LXVIII, 333–337.
Financial Accounting Standards Board, SFAS No. 30: Disclosure of Information About Major Customers, August 1979.
Foroohar, Kambiz (1995) ‘A Tough Market Forces Dye Suppliers to Realign’, Chemical Week, 157, 27.
Galbraith, John Kenneth (1952) American Capitalism, The Concept of Countervailing Power. Boston: Houghton Mifflin Company.
Greene, William H. (1993) Econometric Analysis, 2nd edn. New York: MacMillan Publishing Company.
Greene, William H. (1998) Limdep Version 7.0, User's Manual, Revised edition. Plainview, NY: Econometrics Software, Inc.
Kmenta, Jan (1986) Elements of Econometrics, 2nd edn. New York: MacMillan Publishing Company.
LaFrance, Vincent (1979) The Impact of Buyer Concentration – An Extension, The Review of Economics and Statistics, LXVIII, 333–337.
Love, Alan, and Richard C. Shumway (1994) ‘Nonparametric Tests forMonopsonistic Market Power Exertion’, American Journal of Agricultural Economics, 76, 1156–1161.
Lustgarten, Steven H. (1975) ‘The Impact of Buyer Concentration in Manufacturing Industries’, Review of Economics and Statistics, LVII, 125–132.
Marion, Bruce W., and Frederick E. Geithman (1995) ‘Concentration-Price Relations in Regional Cattle Markets’, The Review of Industrial Organization, 10, 1–19.
Marn, Michael (1997) ‘Inflation: The Rules Have Changed’, USA Today, Magazine, 125, 24.
Ostrowski, Jeff (1998) ‘Big Customers, Big Demands Landing a National Account Can Bring Plenty of New Hassles to a Small Business’, South Florida Business Journal, 18, 1B.
Porter, Michael (1974) ‘Consumer Behavior, Retailer Power and Market Performance in Consumer Goods Industries’, Review of Economics and Statistics LVI, 419–436.
Pressler, Margaret Webb (1997) ‘The Fall of the House of Hechinger; Slow Reaction in the Market that it Created Led to Swift Decline’, Washington Post, July 21, F12.
Ravenscraft, David J. (1983) ‘Structure-Profit Relationships at the Line of Business and Industry Level’, Review of Economics and Statistics, LXV, 22–30.
Renstrom, Roger (1995) ‘OEMs Encourage Suppliers to Get On-Line’, Plastic News, May 1, 4.
Rogers, Richard T., and Richard J. Sexton (1994) ‘Assessing the Importance of Oligopsony Power in Agricultural Markets’, American Journal of Agricultural Economics, 76, 1143–1149.
San Francisco Chronicle (The) (1995) ‘Top Executives Offer Views on Industry Trends’, February 2, D1.
Scherer, F. M., and David Ross (1990) Industrial Market Structure, 3rd edn. Boston: Houghton Mifflin.
Securities and Exchange Commission (1997) Form 10-K Submissions (for manufacturers in the study's sample).
Standard & Poor's (various issues) Industry Surveys.
U.S. Department of Commerce (1994 and 1989) Census of Manufacturing, Concentration Ratios in Manufacturing, Washington, D.C., Government Printing Office.
U.S. Department of Commerce (1996 and 1993) Annual Survey of Manufactures. Washington, D.C.: Government Printing Office.
Walsh Kerri, and Robert Westervelt (1998) ‘Paintmakers Forced to Buy Market Share’, Chemical Week, June 3, 34.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Kelly, T., Gosman, M.L. Increased Buyer Concentration and Its Effects on Profitability in the Manufacturing Sector. Review of Industrial Organization 17, 41–59 (2000). https://doi.org/10.1023/A:1007870816171
Issue Date:
DOI: https://doi.org/10.1023/A:1007870816171