Review of Industrial Organization

, Volume 44, Issue 3, pp 255–275 | Cite as

Cartelization Through Buyer Groups



Retailers may enjoy stable cartel rents in their output market through the formation of a buyer group in their input market. A buyer group allows retailers to commit credibly to increased input prices, which serve to reduce combined final output to the monopoly level; increased input costs are then refunded from suppliers to retailers through slotting allowances or rebates. The stability of such an ‘implied cartel’ depends on the retailers’ incentives to source their inputs secretly from a supplier outside of the buyer group arrangement at lower input prices. Cheating is limited if retailers sign exclusive dealing or minimum purchase provisions. We discuss the relevancy of our findings for antitrust policy.


Buyer groups Collusion Cartels Exclusive dealing  Minimum purchase clauses Rebates 

JEL Classification

K21 L13 L41 L42 



This article was initiated during our PhD tracks at the London School of Economics & Political Science (Chris Doyle) and the Amsterdam Center for Law & Economics (ACLE) at the University of Amsterdam (Martijn A. Han). We are grateful to these institutions, as well as to our PhD advisors Andrea Prat, Maarten Pieter Schinkel, and Jeroen van de Ven. An earlier version of this article was part of Martijn’s PhD thesis Vertical Relations in Cartel Theory (, which was awarded the 2012 Concurrences PhD Thesis Award in Paris. We thank Charles Angelucci, Mark Armstrong, John Asker, Marie Goppelsröder, John Kwoka, Adrian Majumdar, Alasdair Rutherford, Lawrence White, and two anonymous referees for constructive discussions and comments. We are also grateful to participants at the 2009 CLEEN Workshop at TILEC (Tilburg University); the 2009 CCP New Researchers Workshop on Cartels and Tacit Collusion at the University of East Anglia (Norwich); as well as to seminar participants at the U.K. Competition Commission; the Netherlands Competition Authority (NMa); and the University of Amsterdam. This research is supported by the Deutsche Forschungsgemeinschaft via the Collaborative Research Center 649 ‘Economic Risk’.


  1. Abito, J. M., & Wright, J. (2008). Exclusive dealing with imperfect downstream competition. International Journal of Industrial Organization, 26(1), 227–246.CrossRefGoogle Scholar
  2. Aghion, P., & Bolton, P. (1987). Contracts as a barrier to entry. The American Economic Review, 77(3), 388–401.Google Scholar
  3. Asker, J., & Bar-Isaac, H. (2012). Vertical practices facilitating exclusion. Retrieved January 2, 2013, from
  4. Bernheim, B. D., & Whinston, M. D. (1998). Exclusive dealing. Journal of Political Economy, 106(1), 64–103.CrossRefGoogle Scholar
  5. Blair, R. D., & Lafontaine, F. (2005). The economics of franchising. New York: Cambridge University Press.CrossRefGoogle Scholar
  6. Chae, S., & Heidhues, P. (2004). Buyers’ alliances for bargaining power. Journal of Economics & Management Strategy, 13(4), 731–754.CrossRefGoogle Scholar
  7. Che, Y., & Gale, I. (1997). Buyer alliances and managed competition. Journal of Economics & Management Strategy, 6(1), 175–200.CrossRefGoogle Scholar
  8. Chen, Z., & Ross, T. W. (2003). Cooperating upstream while competing downstream: A theory of input joint ventures. International Journal of Industrial Organization, 21(3), 381–397.CrossRefGoogle Scholar
  9. Dana, J. D, Jr. (2012). Buyer groups as strategic commitments. Games and Economic Behavior, 74(2), 470–485.CrossRefGoogle Scholar
  10. Dobson, P. W., & Waterson, M. (1999). Retailer power: Recent developments and policy implications. Economic Policy, 14(28), 135–164.CrossRefGoogle Scholar
  11. Dobson, P. W., & Waterson, M. (2003). Countervailing power and consumer prices. The Economic Journal, 107(441), 418–430.CrossRefGoogle Scholar
  12. Doucette, W. R. (1997). Influences on member commitment to group purchasing organizations. Journal of Business Research, 40(3), 183–189.CrossRefGoogle Scholar
  13. European Commission. (2011). Guidelines on the applicability of article 101 of the rreaty on the functioning of the European union to horizontal co-operation agreements. Official Journal of the European Commission 2011/C 11/01.Google Scholar
  14. Federal Trade Commission. (2003). Slotting allowances in the retail grocery industry: Selected case studies in five product categories. Retrieved January 2, 2013, from
  15. Fershtman, C., & Judd, K. L. (1987). Equilibrium incentives in oligopoly. The American Economic Review, 77(5), 927–940.Google Scholar
  16. Foros, Ø., & Kind, H. J. (2008). Do slotting allowances harm retail competition? Scandinavian Journal of Economics, 110(2), 367–384.CrossRefGoogle Scholar
  17. Fumagalli, C., & Motta, M. (2006). Exclusive dealing and entry, when buyers compete. The American Economic Review, 96(3), 785–795.CrossRefGoogle Scholar
  18. Inderst, R. (2008). Single sourcing versus multiple sourcing. The RAND Journal of Economics, 39(1), 199–213.CrossRefGoogle Scholar
  19. Inderst, R., & Mazzarotto, N. (2008). Buyer power in distribution. In W.D. Collins (Ed.), ABA section of antitrust law: Issues in competition law and policy.Google Scholar
  20. Inderst, R., & Shaffer, G. (2008). Buyer power in merger control. In W.D. Collins (Ed.), ABA section of antitrust law: issues in competition law and policy.Google Scholar
  21. Inderst, R., & Valletti, T. (2011). Buyer power and the ‘waterbed effect’. Journal of Industrial Economics, 59(1), 1–20.CrossRefGoogle Scholar
  22. Inderst, R., & Wey, C. (2003). Bargaining, mergers, and technology choice in bilaterally oligopolistic industries. The RAND Journal of Economics, 34(1), 1–19.CrossRefGoogle Scholar
  23. Inderst, R., & Wey, C. (2007). Buyer power and supplier incentives. European Economic Review, 51(3), 647–667.CrossRefGoogle Scholar
  24. Irmen, A. (1998). Precommitment in competing vertical chains. Journal of Economic Surveys, 12(4), 333–359.Google Scholar
  25. Katz, M. L. (1987). The welfare effects of third-degree price discrimination in intermediate good markets. The American Economic Review, 77(1), 154–167.Google Scholar
  26. Majumdar, A. (2005). Waterbed effects and buyer mergers. CCP working paper no 05–7. Retrieved January 2, 2013, from
  27. Marvel, H. P., & Yang, H. (2008). Group purchasing, nonlinear tariffs, and oligopoly. International Journal of Industrial Organization, 26(5), 1090–1105.CrossRefGoogle Scholar
  28. Marx, L. M., & Shaffer, G. (2007). Upfront payments and exclusion in downstream markets. The RAND Journal of Economics, 38(3), 823–843.CrossRefGoogle Scholar
  29. Mathewson, F., & Winter, R. A. (1997). Buyer groups. International Journal of Industrial Organization, 15(2), 137–164.CrossRefGoogle Scholar
  30. Miklós-Thal, J., Rey, P., & Vergé, T. (2011). Buyer power and intrabrand coordination. Journal of the European Economic Association, 9(4), 721–741.CrossRefGoogle Scholar
  31. Mills, D. E. (2010). Buyer power and industry structure. Review of Industrial Organization, 36(3), 213–225.CrossRefGoogle Scholar
  32. Noll, R. G. (2005). “Buyer power” and economic policy. Antitrust Law Journal, 72(2), 589–624.Google Scholar
  33. Nordemann, J. B. (1995). Buying power and sophisticated buyers in merger control law: The need for a more sophisticated approach. European Competition Law Review, 5, 270–281.Google Scholar
  34. Normann, H., Rösch, J., & Schültz, L. M. (2012). Do buyer groups facilitate collusion? DICE discussion paper, no. 74. Retrieved January 15, 2013, from
  35. O’Brien, D. P., & Shaffer, G. (1992). Vertical control with bilateral contracts. The RAND Journal of Economics, 23(3), 299–308.Google Scholar
  36. OECD. (1998). Buying power of multiproduct retailers. Policy roundtables. Retrieved January 2, 2013, from
  37. Piccolo, S., & Miklós-Thal, J. (2012). Colluding through suppliers. The RAND Journal of Economics, 43(3), 492–513.CrossRefGoogle Scholar
  38. Priest, G. L. (1977). Cartels and patent license agreements. The Journal of Law and Economics, 20(2), 309–377.CrossRefGoogle Scholar
  39. Rasmusen, E. B., Ramseyer, J. M., & Wiley, J. S. (1991). Naked exclusion. The American Economic Review, 81(5), 1137–1145.Google Scholar
  40. Rey, P., & Stiglitz, J. (1995). The role of exclusive territories in producer’s competition. The RAND Journal of Economics, 26(3), 431–451.CrossRefGoogle Scholar
  41. Segal, I. R., & Whinston, M. D. (2000). Naked exclusion: Comment. The American Economic Review, 90(1), 296–309.CrossRefGoogle Scholar
  42. Shaffer, G. (1991). Slotting allowances and retail price maintenance: A comparison of facilitating practices. The RAND Journal of Economics, 22(1), 120–135.CrossRefGoogle Scholar
  43. Simpson, J., & Wickelgren, A. L. (2007). Naked exclusion, efficient breach, and downstream competition. The American Economic Review, 97(4), 1305–1320.CrossRefGoogle Scholar
  44. Sklivas, S. D. (1987). The strategic choice of managerial incentives. The RAND Journal of Economics, 18(3), 452–458.CrossRefGoogle Scholar
  45. Snyder, C. M. (1996). A dynamic theory of countervailing power. The RAND Journal of Economics, 27(4), 747–769.CrossRefGoogle Scholar
  46. Snyder, C. M. (1998). Why do larger buyers pay lower prices? Intense supplier competition. Economics Letters, 58(2), 205–209.CrossRefGoogle Scholar
  47. U.K. Office of Fair Trading. (2007). The competitive effects of buyer groups. Economic discussion paper. Retrieved January 2, 2013, from

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.RBB EconomicsLondonUK
  2. 2.Institute for Economic Theory IHumboldt-Universität zu BerlinBerlinGermany

Personalised recommendations