Buyer Concentration as a Source of Countervailing Power: Evidence from Experimental Posted-Offer Markets

31 Pages Posted: 24 May 2002

See all articles by Jim Engle-Warnick

Jim Engle-Warnick

McGill University - Department of Economics

Bradley J. Ruffle

McMaster University

Date Written: September 2005

Abstract

Although much research has been devoted to the impact of seller structure on market outcomes, considerably less is known about the influence of buyer structure. We examine the impact of buyer concentration on the pricing of a monopolist. We design experimental markets in which a monopolist faces either two or four buyers. Markets with two buyers achieve significantly lower prices, sometimes below competitive levels, than those with four buyers. We design an additional pair of treatments to pinpoint the source of this difference. We attribute the lower prices in the two-buyer treatment to the monopolist pricing more cautiously when there are fewer buyers in order to avoid costly losses in sales. Buyer concentration may thus be an effective source of countervailing power.

Keywords: Strategic buyer behavior, buyer concentration, market structure, experimental economics

JEL Classification: C91, D42

Suggested Citation

Engle-Warnick, Jim and Ruffle, Bradley J., Buyer Concentration as a Source of Countervailing Power: Evidence from Experimental Posted-Offer Markets (September 2005). Available at SSRN: https://ssrn.com/abstract=310339 or http://dx.doi.org/10.2139/ssrn.310339

Jim Engle-Warnick

McGill University - Department of Economics ( email )

855 Sherbrooke Street West
Montreal, QC H3A 2T7
Canada

Bradley J. Ruffle (Contact Author)

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

HOME PAGE: http://https://socialsciences.mcmaster.ca/people/ruffle-bradley