Modelling the effect of buyer and seller power on the margins of commodity plastics

In the last decade, large sectors of the chemical and plastics industries in the U.S.A. and West Europe have suffered drastic declines in price and gross margin during periods of low use of industry capacity. This paper shows that the major changes in gross margin observed for some commodity plastics can be modelled successfully in terms of the balance between buyer power and seller power. These industries have visibility of prices and industry occupacity and comparable concentrations of sellers and important buyers. The modelling follows Burgess (1982) in expressing buyer and seller power as simple functions of buyer and seller concentrations, industry occupacity and ‘cohesion’ between sellers. This work provides a first practical test of this new approach. It is shown that the model fits the observed data best if the ‘cohesion’ declines as occupacity declines. It is suggested that the approach would be useful in understanding the behaviour of other ‘near-commodity’, capital-intensive businesses, and in helping to distinguish between those businesses where margins are likely to remain relatively stable and those which might face drastically declining margins if the industry occupacity declines or new entrants change the balance between sellers and buyers.     

The origins of power in buyer–seller relationships

Who, or what, holds power in business-to-business buyer–seller relationships is a debate at the heart of power theory. Power in buyer–seller relationships is variously seen as the property of organizations, individuals or relationships yet to be theoretically valid and useful to management, integration of these schools of thought needs to be operationalized. This paper opens up future research avenues through identifying how buyers and sellers understand the origins of power and the nature of self perceived and countervailing power. The paper presents results from 10 focus groups of both buyers and sellers revealing the underlying origins of experienced power. The results support the proposition that power in buyer–seller relationships is a pluralistic concept and that extant theories focused on organizational, individual or relational elements of power are independently too narrow in their reflections of the power construct; rather, they are all part of the same broad construct.     

Managing Seller–Buyer Relationships during New Product Development*

Ineffective relationship management with potential buyers during new product development (NPD) can be an important contributor to new product failure in technology‐based, industrial markets. However, empirical research on managing these relationships remains underdeveloped. This study addresses this deficiency by developing an empirically based taxonomy of relationship approaches used by sellers to develop technology‐based, industrial innovations, identifying situational characteristics that correlate with the choice of a particular relationship approach, and evaluating sellers' satisfaction with their relationship approach. The study's conceptual model is rooted in transaction cost analysis (TCA) and draws from extant literature on seller–buyer relationships during NPD. It was tested with data from 334 small to mid‐sized firms in a variety of technology‐based industrial markets. The results indicate that sellers use three basic relationship approaches during NPD: a bilateral approach, a buyer‐guided approach, and a seller‐guided approach. While the bilateral approach relies on a mutual exchange of information, the buyer‐guided and seller‐guided approaches do not. Juxtaposed with the high levels of satisfaction experienced by sellers in the sample, the study suggests that no one relationship approach is universally desirable. Therefore, managers may need to engage in a portfolio of relationship approaches with buyers during NPD; further, these approaches should correlate with buyer‐related (i.e., perceived buyer knowledge and prior relationship history) and innovation‐related (i.e., product customization and technological uncertainty) characteristics. Collectively, these results can help sellers optimize their relationships with buyers during NPD.     

Relationship quality as a resource to build industrial brand equity when products are uncertain and future-based

This article extends our understanding of industrial branding and the influence of buyer–seller relationships by examining key constructs within an industrial context where products are uncertain and future-based. SEM results elicited from 249 buyer surveys empirically validate satisfaction, trust and commitment as dimensions of relationship quality, and show that buyer–seller relationship quality facilitates direct and indirect seller brand equity accruals. Findings reveal that while focusing on sellers' corporate and product brands is good advice for building buyer–seller relationships, seller resource allocations to these areas should vary depending upon the selected target market segment(s). Findings support that sellers should place more focus on developing quality relationships with buyers than they should in focusing on the non-relational attributes of their corporate brands; however, if sellers choose to bypass building high quality customer relationships, they should instead funnel resources into their product brand offerings. Findings demonstrate that buyers credit their own skills and acumen when evaluating products with which they are confident, and ascribe increased value to the involvement of the seller as their attitude and certainty decrease. These findings provide strategic guidance to the sellers of uncertain and future-based industrial products.     

When Do Large Buyers Pay Less? Experimental Evidence

The rise of mega‐retailers has precipitated a growing literature on large‐buyer discounts. According to Rotemberg and Saloner [1986] and Snyder [1998], large buyers' ability to obtain price discounts depends on their relative size and the degree of seller competition. I test experimentally implications of this theory concerning the number of sellers and the sizes of buyers in the market. The results track the comparative‐statics predictions to a surprising extent. Subtle changes in the buyer‐size distribution or number of sellers can create or negate large‐buyer discounts. The results highlight the previously unexplored role of the demand structure in determining buyer‐size discounts.     

Building trust in US-Japanese business relationships: Mediating role of cultural sensitivity

While evidence suggests trust plays a fundamental role in maintaining successful buyer-seller relationships in Japan, little is known conceptually as to how foreign sellers can best develop trust in the minds of their Japanese customers. In this research, we develop and test a multi-component model of US seller actions that manifest key trust-building processes (intentionality- and capability-processes) which sellers find effective in building trust with their Japanese buyers. In this unique cultural context, theory suggests trust develops when sellers demonstrate benevolent intentions toward the buyer and exhibit a strong capability to fulfill business promises. An analysis of 181 US sellers in Japan demonstrates that a combination of trust-building efforts is recognized as being critical in seller attempts to develop and sustain trust on the part of their Japanese customers. Importantly, cultural sensitivity mediates the impact of intentionality-based practices on buyer trust, while capability-based activities directly influence trust.     

Ethnicity in housing markets: Buyers,sellers and agents

This paper examines how ethnicity related to cultural differences arising from ethnic background affects housing market transactions in the Atlanta metro area. Using both the US Census and Wikipedia approaches to infer ethnicity from individuals' names, we find that the interplay of buyer, seller, and agent ethnicity composition affects interaction in the housing market. Sellers working with listing agents in the same ethnic group set higher listing prices and enjoy higher selling prices and quicker sales. Agents working with same ethnicity buyers yield higher prices and liquidity. Even though sellers only communicate with buyers through their agents, houses sold by sellers to buyers of same ethnicity have higher prices and sell faster. And while the ethnic mix of agents and their clients matter, the ethnic mix of agents in the transaction does not.     

Controlling Sellers Who Provide Advice: Regulation and Competition*

A monopoly seller advising buyers about which of two goods fits their needs may be tempted to recommend the higher margin good. For the seller to collect information about a buyer’s needs and provide truthful advice, the profits from selling both goods must be similar enough, i.e., within an implementability cone. The optimal regulation controls pricing distortions and information-collection incentives separately via price regulation and fixed rewards respectively. This no longer holds when the seller has private information about costs as both problems interact. We study whether competition and the threat by buyers to switch sellers can substitute for regulation.     

Online content match-making in B2B markets: Application of neural content modeling

Business-to-business (B2B) sellers need to enhance content marketing and analytics in an online environment. The challenge is that sellers have data but do not know how to utilize it. In this study, we develop a neural content model to match the content that B2B sellers are providing with the type of content that buyers are seeking. The model was tested with two experiments using a dataset that combines cookie-based browsing data from 74 B2B seller companies over a period of fourteen months. In total, the data comprises 180 million browsing sessions tracked via 11.44 million cookies from 34,170 buyer companies. In the first experiment, we study the content in the sellers' own channels, and in the second experiment we study paid channels. With these experiments, we illustrate that browsing data can be combined with marketing content data to evaluate and improve the content-marketing efforts of B2B seller firms. Since the development of digital information technologies (DITs) has made the B2B buying process more buyer driven, our neural content modeling approach can be used to create B2B analytics that re-empower the sellers.     

Buyer confusion and market prices

We employ a price setting duopoly experiment to examine whether buyer confusion increases market prices. Each seller offers a good to buyers who have homogeneous preferences. Sellers decide on the number of attributes of their good and set prices. The number of attributes bears no cost to the sellers and does not affect the value of the good to the buyers but adds complexity to buyers’ evaluation of the goods. The experimental results indicate that the buyers make more suboptimal choices and that prices are higher when the number of attributes of the goods is higher. Moreover, prices and profits are higher than those in a benchmark treatment with perfectly rational (robot) buyers.     

The effective use of marketing research consultants

Relatively little has been written about effectively managing the buyer-seller relationship for marketing research services. To provide insights into effectively managing this relationship, a survey of both buyers and sellers of marketing research services was conducted. Major findings were that proper problem definition, a familiarity with research methods by the research buyer, and continuous communication between buyer and seller were critical determinants of a successful consultant relationship. For best results the market research buyer-seller relationship should be treated as a mutually beneficial one, not one of conflict or acrimony.     

Assessing the Market Value of Real Estate Property with a Geographically Weighted Stochastic Frontier Model

In this study we consider the problem of sellers, buyers and real estate appraisers in determining the price for a house, taking into account the characteristics of the house and its location as well as the goals of these three different parties. The appraiser's job is to determine the fair market value of the house, while the buyer and seller want to find, respectively, the lowest and highest feasible price for it. We combine recent developments in geography and econometrics to develop an approach that determines local estimates of property values from the perspectives of the buyer, seller and appraiser, taking into account the characteristics of the house as well as its location. We illustrate our approach analyzing closing prices in one residential real estate market.     

Mechanism choice and the buy-it-now auction: A structural model of competing buyers and sellers

A striking feature of many online sales platforms is the coexistence of multiple sales mechanisms. Items on eBay, for instance, are frequently offered through auctions, posted prices, and buy-it-now auctions. In this article, I study how this mechanism multiplicity influences the welfare of buyers and sellers. I specify and estimate a structural model of mechanism choice in online markets, in which I consider both sides of the market: On the demand side, buyers' choices among available listings are equilibrium outcomes of an entry game. On the supply side, sellers make equilibrium decisions when choosing sales mechanisms and prices. I estimate this model using data from sales of baseball tickets on eBay and calculate consumer and seller rents in three markets: the actual market with all three sales mechanisms and two counterfactual markets with auctions and fixed prices or only fixed-price listings, respectively. I find that the addition of auctions to fixed-price markets hurts sellers and risk-averse buyers but benefits risk-neutral buyers. Additionally, the consumer surplus increases when buy-it-now auctions are offered but the seller surplus is reduced further. I discuss the intuition for the cause of this result.     

An Experimental Analysis of the Impact of Intermediaries on the Outcome of Bargaining Games

We conduct an experimental analysis of the bargaining between a buyer and a seller of the exchange of a single good by means of an intermediary or broker. We examine how an intermediary affects the price, the likelihood of a successful negotiation, and the time it takes to complete a negotiation. We first examine the impact of the intermediary as a pure middleman, and then as an information source about the distribution of seller and buyer reservation prices. The results show that an intermediary, whether or not informed, increases the sale price, reduces the likelihood of an agreement, and increases the time to reach an agreement (though the number of bargaining rounds declines). The results suggest that the benefits of brokerage may be predominantly in the matching of buyers and sellers rather than in facilitating bargaining.     

Reverse Price Discrimination with Bayesian Buyers

This paper studies price discrimination under the situation in which buyers' prior valuations are initially observable by a seller but buyers receive further information about a product or service which remains private thereafter. The buyers interpret new information via Bayes' rule. We show that, in this environment, prices are not monotone in buyers' prior valuations. Interestingly, this results in the possibility that a seller intentionally offers a higher price to a low valuation buyer rather than a high valuation buyer (Reverse Price Discrimination). We derive this result in both monopoly and duopoly markets.     

Bilateral strategic groups: The market for nontactical navy information systems

Although recent studies of strategic groups have provided much insight into the nature of intra-industry rivalry, most studies have focused on the strategies of seller firms. In this paper we argue that the bilateral exchange between groups of buyers and sellers in adjacent markets should be made explicit. Within this bilateral context, the market for non-tactical Navy infomation systems is empirically examined. Strategic groups are developed for both seller and buyer industries, and the interaction between these groups are explored over time. In particular, two market interventions, the imposition of industrial funding procedures in 1984 and a Life-Cycle requirement order in 1988, were examined with respect to their impact on seller/customer exchanges and vertical integration strategies. Significant changes in strategies were noted, and explained within a transaction cost framework.     

How does customer orientation (in)congruence affect B2B electronic commerce platform firms' performance?

Business-to-business (B2B) electronic platforms have become important channels for transforming traditional modes of transaction. The success of these platforms relies heavily on the platform firms' customer orientation (CO) practices, which are designed to attract both sellers and buyers. This study draws on the cross network effect theory to explore whether and how a B2B e-commerce platform firm's (in)congruent CO strategic initiatives toward sellers or buyers affect the firm's performance. In addition, the moderating effects of seller-side and buyer-side demand uncertainty on the relationship between CO (in)congruence and platform firm performance are investigated. The analysis of data collected from 185 B2B electronic platform firms in China reveals that CO incongruence is more beneficial to firm performance than CO congruence. Furthermore, when seller-side demand uncertainty is high, an increase in seller-focused CO incongruence (i.e., higher seller orientation than buyer orientation) or buyer-focused CO incongruence (i.e., lower seller orientation than buyer orientation) improves or impedes a B2B e-commerce platform firm's performance, respectively. However, when buyer-side demand uncertainty is high, an increase in either type of CO incongruence does not improve firm performance. These findings contribute to the literature on and practices of B2B e-commerce and customer orientation.     

Real Estate Brokers, Nonprice Competition and the Housing Market

Given a fixed commission rate and easy entry, economic profits must be competed away on some nonprice margin in the real estate brokerage market. This paper focuses on nonprice competition in the level or quality of services offered buyers and sellers in the market, examining the equilibrium adjustment process, comparative static predictions and efficiency implications. In contrast with earlier studies focusing on wasteful advertising, this paper demonstrates that higher commission rates can either increase or decrease deadweight loss, depending upon how broker services affect buyer and seller transaction costs.     

Seller–Buyer Interactions During the Commercialization of Technological Process Innovations

For buyers and sellers alike, high-tech process innovations can be a double-edged sword. On the one hand, technological process innovations (e.g., computer hardware and software, factory automation equipment) offer buyers the potential for reduced production costs and enhanced product quality. However, early adoption of such innovations is often a risky proposition. For the seller, successful commercialization requires stimulating not only adoption, but also successful implementation of the innovation. In other words, effective management of seller—buyer relations during the development and commercialization process go a long way toward determining the success of a high-tech process innovation. Gerard A. Athaide, Patricia W. Meyers, and David L. Wilemon examine the relationship marketing activities employed by successful sellers of high-tech process innovations. They identify eight strategic marketing objectives that underlie these relationship marketing activities: product customization, information gathering on product performance, product education and training, ongoing product support, proactive political involvement (to encourage support for the innovation from the various affected parties in the buyer's organization), product demonstration and trial, real-time problem-solving assistance, and clarification of the product's relative advantage. Their findings suggest that successful sellers engage in relationship marketing activities throughout all phases of the commercialization process. Rather than simply trying to close a deal, these firms seek active involvement from potential customers, ranging from codesigning of products to seeking feedback on product-related problems or desired modifications. This broader scope of customer involvement necessitates cooperation among various groups in the seller's organization. Product development and engineering work closely with the customer during product customization. Those groups must communicate effectively with the salespeople who demonstrate the product and with the customer support people who obtain feedback and provide real-time problem-solving support. In other words, these relationship marketing activities cut across functional barriers. Consequently, a clear understanding of the buyer's needs and environment is essential throughout the seller's organization, not just in the sales and marketing departments.     

Seller reputation: From word-of-mouth to centralized feedback

Reputation is one of the most important incentives for trade and cooperation. Using the complete selling history of 125,135 sellers on Eachnet.com (an eBay equivalent in China), we show that sellers with a longer successful selling record enjoyed more repeat business, reached more buyer regions, sold in more product categories, and had a higher completion rate even before Eachnet introduced a centralized feedback system. Since the centralized feedback system, the difference between reputable and non-reputable sellers has decreased in terms of repeat business but enlarged in terms of market expansion. These findings suggest that while reputation can facilitate trade through buyer experience and word-of-mouth, it is not as effective as centralized feedback. Our study also shows that, although completion rate and transaction price are the two outcomes most often examined in the literature, seller reputation is important for buyer clientele, market reach, business scope and market survival.