This article is a substantially revised and improved version of our working paper ‘Buyers’ miscoordination and entry’ (CEPR DP No. 2908). We are grateful to P. Battigalli, A. Cabrales, V. Denicolò, E. Iossa, L. Karlinger, P. Klemperer, E. Malavolti, V. Nocke, G. Norman, J. Padilla, P. Rey, T. Rønde, P. Seabright and two anonymous referees for suggestions and discussions, and to seminar participants at EEA (Bolzano), EARIE (Lausanne), ASSET (Lisbon), European University Institute, Oxford (Nuffield College) and Paris I for comments. Chiara Fumagalli gratefully acknowledges financial support from MURST (Progetto Giovani Ricercatori and PRIN 2005), the TMR Network ‘The industrial organisation of banking and financial markets in Europe’ and the European University Institute for hospitality during part of this research.
Buyers’ Miscoordination, Entry and Downstream Competition*
Article first published online: 14 AUG 2008
© The Author(s). Journal compilation © Royal Economic Society 2008
The Economic Journal
Volume 118, Issue 531, pages 1196–1222, August 2008
How to Cite
Fumagalli, C. and Motta, M. (2008), Buyers’ Miscoordination, Entry and Downstream Competition. The Economic Journal, 118: 1196–1222. doi: 10.1111/j.1468-0297.2008.02166.x
- Issue published online: 14 AUG 2008
- Article first published online: 14 AUG 2008
- Submitted: 16 March 2004 Accepted: 1 July 2007
This article shows that buyers’ coordination failures might prevent entry in an industry with an incumbent firm and a more efficient potential entrant. If there were a single buyer, or if all buyers formed a central purchasing agency, coordination failures would be avoided and efficient entry would always occur. More generally, exclusion is less likely the lower the number of buyers. For any given number of buyers, exclusion is less likely the more fiercely buyers compete in the downstream market. First, intense competition may prevent miscoordination equilibria from arising; second, in cases where miscoordination equilibria still exist, it lowers the maximum price that the incumbent can sustain at such exclusionary equilibria.