Buying Power of Multiproduct Retailers

Author: OECD Organisation for Economic Co-operation and Development

Source: OECD Journal of Competition Law and Policy, Volume 2, Number 1, February 2000 , pp. 81-194(114)

Publisher: OECD - Organisation for Economic Co-operation and Development

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Abstract:

Many OECD countries’ competition agencies have been under pressure to take action against the exercise of buyer power by large multiproduct retailers. In several countries, such pressure has been accompanied by new legal provisions designed to counter abuses of "economic dependence", or to strengthen prohibitions attaching to price discrimination and loss leading. Although there may be valid efficiency justifications for prohibiting the exercise of buyer power by multiproduct retailers, there are also significant risks in doing so. Ill-advised enforcement could amount to protecting inefficient distributors at the expense of consumers. The buyer power referred to above and extensively discussed in the paper is quite different than classic monopsony power, i.e. the power to reduce prices below competitive levels by actually reducing amounts purchased. Instead, the focus here is on what might more accurately be described as negotiating power arising in situations where upstream suppliers enjoy significant market power. Profit maximising distributors will naturally seek to reduce their suppliers’ rents. Indeed, where distribution is competitive, multiproduct retailers are driven to use negotiating power to reduce those rents and to pass them on to consumers. As long as distribution is sufficiently competitive, the exercise of multiproduct retailer buyer power will tend to benefit consumers.

Page Count: 114

Document Type: Review article

Publication date: 2000-02-01