Cartelization Through Buyer Groups

Abstract

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 credibly commit 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 secretly source 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 Power from Joint Listing Decision

“…31 A simple two-part tariff would suffice to achieve this; the wholesale price can be adjusted so as to induce the appropriate outcome in the downstream market, and the fixed feewhich can be negative, if needed, as in the case of slotting allowancescan then be used to share the profits as desired. 32 For studies of buyer groups that focus on this feature of buyer groups, see Foros and Kind (2008) and Doyle and Han (2014). 33 This, in turn, may deter a firm from joining the group.…”

“… For studies of buyer groups that focus on this feature of buyer groups, see Foros and Kind () and Doyle and Han (). …”

A theory of hub-and-spoke collusion

“…In contrast to the present paper, they consider competition between competing hierarchies where each supplier only interacts with a single retailer. Doyle and Han (2014) show that retailers can collude more easily through the formation of a buyer group. A buyer group allows retailers to commit to higher input prices which makes collusion easier to sustain.…”

“…Collusive strategies involving suppliers and retailers usually involve an increase in retail price (see Piccolo and Miklos-Thal (2012) and Doyle and Han (2014)). …”

“…The use of two-part tariffs is a well-known solution to improve vertical relations. In particular, Piccolo and Miklos-Thal (2012) and Doyle and Han (2014) show that increasing the wholesale price and using slotting fees can improve the sustainability of collusion between retailers. Both these models assume that retailers have all of the bargaining power 9 and deal with an exclusive supplier.…”