Contracts as a barrier to entry: Impact of Buyer’s asymmetric information and bargaining power

An incumbent seller contracts with a buyer under the threat of entry. The contract stipulates a price and a penalty for breach if the buyer later switches to the entrant. Sellers are heterogenous in terms of the gross surplus they provide to the buyer. The buyer is privately informed on her valuation for the incumbent’s service. Asymmetric information makes the incumbent favor entry as it helps screening buyers. When the entrant has some bargaining power vis-à-vis the buyer and keeps a share of the gains from entry, the incumbent instead wants to reduce entry. The compounding effect of these two forces may lead to either excessive entry or foreclosure, and possibly to a fixed rebate for exclusivity which is afforded to all buyers.     

Buyer Brokers: Do They Make a Difference? Their Influence on Selling Price and Search Duration

This study focuses on the role of buyer brokers in the home-buying process by examining the effects of brokerage representation on home selling prices and search duration. The results of this study indicate that real estate brokers, no matter the type, have no independent effect on home prices. The principal effect of broker intermediation is a reduction in buyer search time, compared to for-sale-by-owner transactions. The most important finding, however, is that buyer agents are more effective at reducing search time for their clients than more traditional seller agents or non-agent facilitators.     

Asset Price Persistence and Real Estate Market Illiquidity: Evidence from Japanese Land Values

We develop an overlapping generations model of the real estate market in which search frictions and a debt overhang combine to generate price persistence and illiquidity. Illiquidity stems from heterogeneity in agent real estate valuations. The variance of agent valuations determines how quickly prices adjust following a shock to fundamentals. We examine the predictions of the model by studying price depreciation in Japanese land values subsequent to the 1990 stock market crash. Commercial land values fell much more quickly than residential land values. As we would posit that the variance of buyer valuations would be greater for residential real estate than for commercial real estate, this model matches the Japanese experience.     

Price Dispersion and Price Discrimination: Empirical Evidence from a Spot Market for Water

This note shows the existence of price dispersion and pricediscrimination in a spot market for water.Several behaviors contributing to this dispersion/discrimination arefound for both the seller and buyer in this relatively competitive market,and examples are given of each. Using some previous theoretical work,the common thread linking the differing behaviors is shown to bediffering levels of information and search costs.     

Supplier integration in new product development: Computer mediated communication,knowledge exchange and buyer performance

In new product development (NPD), the buyer–supplier relationship is changing. Suppliers are becoming an integral part of the design team. This study investigates the effectiveness of computer-mediated and face-to-face communication channels on knowledge exchange between buyer and supplier firms, and ultimately buyer NPD and market performance. Open innovation literature and media richness theory are used to develop hypotheses which are then empirically tested using data collected from 157 R&D project managers from U.S. manufacturing firms. To date, empirical studies on the link between supplier integration and buyer performance show conflicting results. Structural equation modeling found a significant positive link between knowledge exchange and NPD performance, measured both in terms of effectiveness and efficiency, and a significant positive link between effective and efficient NPD and market performance. A surprising finding is that contrary to media richness theory, email can perform like face-to-face communication transmitting rich information and having a positive relationship to knowledge exchange between buyer and supplier. It was also found that with face-to-face communication, knowledge exchange fully mediates the relationship with effective NPD while with email communication knowledge exchange fully mediates the relationship with efficient NPD. Video conferencing was found to have no significant effect on knowledge exchange and the effect of web-based tools was significant and negative. The implications of these findings in theory and practice are discussed.     

A Simple Search and Bargaining Model of Real Estate Markets

This paper examines the impact of brokers on buyers' and sellers' search behavior and on the transaction prices in real estate markets. It is shown that the seller and the buyer search less intensively if the house is listed with a broker. The seller gets a higher price when he employs a broker, but the increase in price is smaller than the commission fee. More specifically, the portion of the commission covered by the increase in price is directly related to the bargaining powers of the buyer and the seller. In the special case where the price is determined according to the Nash bargaining solution, the increase in price is shown to be half of the commission fee. It is also shown that an increase in the commission rate increases the equilibrium price but decreases the equilibrium search intensities.     

ORDER PROCESSING COST REDUCTION IN A JOINT VENDOR-BUYER INVENTORY SYSTEM VIA THE APPLICATION OF INFORMATION TECHNOLOGY

Modem information technologies have become important means for manufacturing and retailing firms to gain such competitive advantages as lower logistics costs and securer customers' loyalty. In this paper, we investigate a joint inventory system where the vendor produces a single item for its sole buyer and the buyer sells the item to consumers with backorders allowed. Each production lot is delivered to the buyer in a number of shipments and consecutive shipments will be increased by a fixed factor. Both vendor and buyer are willing to participate in order processing time reduction by applying information technologies in order to decrease their joint total cost. The order processing time can be reduced by certain expenditures and will affect the lot-size decisions. An analytical model is developed for determining the optimal expenditure in order processing time reduction and lot sizes for both vendor and buyer. The numerical experiment along with sensitivity analysis is also performed to obtain some insights of our model.     

Understanding small scale industrial user internet purchase and information management intentions: A test of two attitude models

The present research compares two attitudinal models—variants of the Theory of Planned Behavior (TOPB) in terms of understanding the determinants of industrial buyer intentions to use the internet. The first variant of the Theory of Planned Behavior examines a decomposed perceived behavioral control construct that consists of self-efficacy and perceived control. The second variant of the TOPB model adds past behavior. Data from small scale users of industrial equipment are used to explore the models using structural equation modeling. While both variants of the TOPB are comparable in terms of standard fit indices, the variant with past behavior added substantially to the variance explained for internet purchase intentions. These results hold implications for future theory, research, and management of information technology-related small scale industrial buyer motivation.     

Industrial buying behavior in Brazil

Many firms in less developed countries (LDCs) make little use of available information when they are considering investing in new production technology. A very small number of alternative suppliers are generally considered and supplier evaluation is often perfunctory. A number of questions concerning the information on alternative suppliers are raised and answers were sought in a field study carried out in Brazil. The factors that influence the degree of search by managers for information on alternatives included the relative cost of the equipment, the familiarity of the buyer with the technology, the cost of acquiring the information, the available resources of the company, and the buyer's expectations concerning quality and price, Implications for industrial marketing in LDCs are discussed and suggestions are made concerning the assistance that LDC governments can provide to firms that import production technology from the industrialized countries.     

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.     

How buyer–seller relationship orientation affects adaptation of sales processes to the buying process

Adaptation in sales is common in business relationships. The purpose of this study is to understand how the buyer–seller relationship affects sellers' sales process adaptation to customers' buying processes. The results reveal how the buyer–seller relationship orientation affects sales process adaptation and its effects. The main sources of information in this qualitative inquiry are in-depth, semi-structured interviews with key informants representing a buyer–seller relationship. This study helps to shed light on how the buyer–seller relationship orientation affects sales process adaptation. The findings reveal that both the buyer and the seller have an impact on sales process adaptation. Extant research has recognized adaptation as a central aspect in relationships, while largely neglecting sales process adaptation. Thus, this study focuses on the effects of buyer–seller relationship orientation on sales process adaptation.     

Why Do Suppliers Charge Larger Buyers Lower Prices?

The phenomenon of input suppliers charging larger buyer firms, relative to smaller buyer firms, lower prices is commonly explained in terms of supplier economies of scale, supplier competition for larger buyers, and the larger bargaining power of larger buyers. This paper provides an alternative explanation, and shows that the observed direction of differential pricing can benefit the supplier by lowering the level of tacit collusion its buyers can sustain in their output market. This result also provides a new mechanism through which a ban on price discrimination by input suppliers may lower consumer welfare.     

Buyer and supplier attractiveness in a strategic relationship — A dyadic multiple-case study

In a strategic buyer–supplier relationship (BSR), both the buyer and the supplier aim to leverage the relationship for gaining competitive advantage. Since strategic BSR requires a lot of effort from both parties, firms have become very selective in terms of with whom they engage in a strategic BSR. Therefore, both buyers and suppliers must shape their attractiveness in order to get the other party to put effort to the relationship. Towards this end, the present study explores the drivers of buyer and supplier attractiveness in strategic relationship through 43 interviews in six buyer–supplier dyads. We identified four main categories of both buyer and supplier attractiveness: 1) economic-based, 2) behavior-based, 3) resource-based, and 4) bridging-based attractiveness. We find economic- and behavior-based attractiveness strongly present in all dyads, while resource- and bridging-based attractiveness are emphasized when the strategic intent has more explorative elements and when the aim is to leverage the dyadic relationship in developing businesses outside the dyad. We synthesize our results to a model of attractiveness in a strategic BSR, which bring forth dyad considerations of buyer and supplier attraction.     

How can business buyers attract sellers' resources?: Empirical evidence for preferred customer treatment from suppliers

This paper describes a study that investigates what makes a buyer attractive to a seller in a business-to-business buyer–seller relationship and encourages the seller to commit to and invest resources preferentially in the relationship. The study helps answer the question, “What is it that the buyer needs to do to create this attractiveness?” The perspective is somewhat unusual in the marketing literature for two reasons. Firstly, because it investigates how the supplier perspective of customer financial attractiveness affects the attitudes and actions of the supplier towards the buyer, rather than taking the buyer's perspective across the relationship. Secondly, the study has relationship attractiveness in terms of financial performance as an antecedent of its relationship constructs, whereas most relationship studies investigate performance as an outcome. The paper develops a model that proposes the seller's perception of customer financial attractiveness, seller satisfaction, and seller commitment as drivers of the seller's preferred customer treatment by allocation of resources to the relationship. The bases for the study's model are the resource-based view of the firm, the industrial marketing and purchasing (IMP) models, and related resource-focused theoretical streams. The study finds support for the model in the analysis of survey data.     

Downstream Vertical Foreclosure and Upstream Innovation

I examine a link between downstream foreclosure and upstream innovation. The crucial ingredient of the model is the presence of dynamic economies of scale upstream in the form of competition in R&D. The reason an upstream supplier has a captive buyer is to force rival suppliers to incur the disadvantages of low-scale production and discourage them from innovating. The downstream buyer is offered favorable terms and is “convinced” to sign an exclusive supply contract and accept captivity. In this context, downstream foreclosure may reduce consumer welfare.     

Information search in complex industrial buying: Empirical evidence from Brazil

This study develops and tests a model of information search in complex buying. We incorporate three categories of influences of organizational, personal and situational factors that affect information searching efforts. A sample of 96 of the largest Brazilian firms reported their use of the various influences in the decision to purchase integrated business management systems. Findings show that formalization of the organization is a key driver of information search efforts. Situational characteristics of importance, novelty and bargaining power increased the level of information search. Also, conformity of the purchasing agent and organizational centralization reduce information search efforts among the sampled Brazilian firms.     

A decision model for adopting an extended warranty under different maintenance policies

Numerous products are sold with a warranty period and the possibility of buying an extended warranty for a given additional cost. The buyer has then to decide to take the extended warranty or not when purchasing the product. We develop in this paper a mathematical model to study the opportunity provided by the extended warranty for the buyer as well as for the manufacturer. The total average cost incurred by each side during the product’s life cycle is expressed in order to determine the maximum extra cost the consumer should pay and the minimum price at which the manufacturer should sell the extended warranty. This is done under different options in terms of maintenance strategies adopted during the product’s lifecycle.     

Value-based sales process adaptation in business relationships

In business relationships, the seller is often expected to adapt to the buyer. The main purpose of this study is to understand how business firms adapt their sales processes to the buyer. The resulting framework, which reveals how different modes of adaptation are contingent upon the type of product being purchased, includes three layers: sales process adaptation, seller–buyer relationship orientation, and the purchasing portfolio. The study is a qualitative one and utilizes a retrospective case study, where the main sources of information are in-depth semi-structured interviews with key informants representing the seller and buyer counterparts in the ICT industry. Our study adds to the understanding of how different modes of adaptation are contingent upon the type of item being sold and purchased. Managerial implications include that to strategically adapt, the seller could focus on the purchasing portfolio. Although previous research has recognized adaptation as a central aspect in relationships, how the sales process could be adapted to the buyer has received little attention. This study focuses on the adaptation of sales to strategically match it to the buyer's situation.     

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.     

House Search Duration in Hot and Cold Residential Markets

This study analyzes the determinants of house search duration of consumption‐driven buyers and individual investors in different housing market environments. We use data from surveys of recent house‐buyers in “hot” and “cold” housing markets in the 2000s housing bubble in California characterized by rising and declining residential house prices, respectively. The average house price and the surveyed geographical area are the same for both periods. Expected house ownership horizon is shown to be an important determinant of the realized search duration in addition to commonly considered housing and buyer characteristics. We find a statistically significant positive effect of it on the time until purchase in both housing price environments for consumption‐driven buyers. We also find that consumption‐driven house purchases were highly pronounced in coastal areas in the hot market and inland areas in the cold market. In contrast, long‐horizon investment activity leads that of consumption activity in those areas. Short‐horizon investors, on the other hand, concentrated their house search activity in inland areas in both housing market environments.