Cartelization Through Buyer Groups
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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.
KeywordsBuyer groups Collusion Cartels Exclusive dealing Minimum purchase clauses Rebates
JEL ClassificationK21 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 (http://carteltheory.com), 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’.
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