BUYER POWER AND THE ‘WATERBED EFFECT’

Authors


  • *We thank Paul Dobson, Adrian Majumdar, the Editor and two anonymous referees for very helpful comments and discussions. Support from ESRC grant RES-062-23-2099 is gratefully acknowledged.

Abstract

When a buyer is able to obtain lower input prices from a supplier, is it possible that other buyers will have to pay more for the same input as a result? Is this bad for consumers? We present a model that analyzes the conditions under which the asymmetric exercise of buyer power can lead to consumer detriment through raising other buyers' wholesale prices (the ‘waterbed effect’).

Ancillary