Buyer Power in

Distribution
Group Members
Arslan Aftab
Asim Liaquat
Muhammad Bilal
Muhammad Waleed Usman
Sakina Mannan
 Introduction
O Several Level of Distribution Involved

O Competitive forces play at each distribution

level

O Selling directly or through retailers

O Powerful Buyers influence

 Sources of Buyer Power
O Bilateral negotiations over supply contracts.
O Buyer’s Size on the distribution of bargaining
power.
O Monophony power
O Buyer power represents the perfect mirror
image of seller power
O Simple bargaining setting
 Cont…..
O Competition between retailers

O Tacit or explicit coordination among suppliers

O Role of information
 Buyer Power in Retailing
O Fundamental changes in retailing industry
O Efficiency gains from integrating backwards
O Rise of the supermarket format
O Larger retailers gaining a stronger position in negotiating
O Buyer power and retailers’ size
O Retailers’ gate keeping function and suppliers’ dependency
Waleed’s Part
Buyer Power and Foreclosure
O The party that wants to exclude a rival must
essentially “bribe” firms on the other side of
the market into such an arrangement by
sharing some of the higher profits generated
by the exclusion
O If suppliers have still to be bribed or coerced
into excluding a particular retailer, then
powerful incumbents may be better placed to
do so
 Cont’d…
O While reducing competition “on the shelf”
this can sufficiently enhance competition “for
the shelf” so as to make it a worthwhile
strategy for the buyer
Incentives to invest and innovate
O The exercise of buyer power could stifle
suppliers’ incentives to invest and innovate
O In reality a supplier may have to unilaterally
shoulder a larger fraction or even all of the
upfront costs to develop a new product,
hoping that it can subsequently realize an
adequate return when negotiating with its
different buyers
O Incentives generally depend not so much on
the overall level of its profits as on the
incremental profits that may be generated by
the investment, which need not be lower in the
presence of larger or otherwise more powerful
buyers
O In fact, compared to a situation where product
innovation, branding, and promotion are all
dominated by manufacturers, the presence of large
and sophisticated retailers with their own strong
umbrella brands may also stimulate innovation by
creating fiercer “vertical competition”, that is
competition between upstream and downstream
firms over the share of the functions of
innovation, marketing, production etc. in the
supply chain and the associated margins
 CONCLUSION
Two objectives:
O Provide a survey of recent contributions to the
economic literature on the sources and
consequences of buyer power.
O Economic perspective on a broader spectrum
of issues that seem to be relevant for antitrust
authorities that have to deal with buyer power.
Issues that need to be addressed:
O Whether the formation of larger/powerful
buyers is conducive to harmful vertical
restraints.
O whether the presence of market power at both
the upstream and downstream level of the
supply chain could be harmful.
O To what extent would “exploitative and
abusive” contractual practices are the outcome
of efficient negotiations or whether they are
also in the short-run.
O Better study could be carried out if empirical
data is available.