Work

Buyer Power and the ‘waterbed Effect’*

Year: 2011

Type: article

Abstract: We present a simple model where the growth of one downstream firm generates lower wholesale prices for this firm but higher wholesale prices for its competitors (the waterbed effect). We derive conditions for when, even though firms compete in strategic complements, this harms consumers. This is more likely if larger firms already obtain substantial discounts compared to their smaller competitors. Furthermore, the identified waterbed effect holds irrespective of whether a firm grows by acquisition or organically by becoming more efficient.

Source: Journal of Industrial Economics

DOI: 10.1111/j.1467-6451.2011.00443.x

Authors: ROMAN INDERST, TOMMASO M. VALLETTI

Institution: Imperial College London

Language: English

Topic: Merger and Competition Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funder: Economic and Social Research Council

Award: G577015917