Abstract
This paper aims to investigate the impact of buyer power on the wholesale price and retail price of, in the case, downstream competition. Based on a summary of the competitive characteristics of China’s retail market, a model of a vertical market was constructed to examine the influence of buyer power on the pricing decisions of manufacturers and retailers, and to analyze the mechanism of price decisions. The results showed that the buyer power of national retailers reduced the wholesale price, but the impact on local retailers remained uncertain. Although increasing buyer power initially increased the local retailer’s wholesale price and caused the ‘waterbed effect’, we found that this effect reverted when the buyer power reached a point at which the ‘anti-waterbed effect’ appeared. The opposite was true of the retail price. However, buyer power reduced the average retail price, and consumer welfare improved.
Highlights
Market power, corporate behavior, and market performance have always been the core issues of economic research, and have been the focus of antitrust regulation
In a downstream competition market, if the horizontal effect of buyer power is not taken into account, as there are increases in the buyer power of the national retailer, the wholesale price of the national retailer declines, and the wholesale price paid by the local retailer rises first and falls
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Summary
Corporate behavior, and market performance have always been the core issues of economic research, and have been the focus of antitrust regulation. In terms of China’s retail market, the conflict between Gome and Gree in 2004, the conflict between RT-Mart and Blue Moon in 2015, and the conflict between China Resources Vanguard and Walch in 2015 are salient examples [12,13,14] These conflicts affect the sustainable development of the retail industry and suppliers, and the economic sustainability influenced by buyer power. In order to make up for this loss, upstream suppliers may increase the price for other retailers, meaning that buyer power may worsen the exchange provision of competitors Galbraith believed that buyer power would bring retailers preferential clauses and, at the same time, that consumers would receive benefits, such as decreased retail prices and improved social welfare This is called the Galbraith Hypothesis [2].
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