BUYER POWER AND THE ‘WATERBED EFFECT’* |
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| Authors: | ROMAN INDERST TOMMASO M VALLETTI |
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| Institution: | 1. University of Frankfurt, Imperial College London and CEPR. e‐mail: Roman.Inderst@hof.uni‐frankfurt.de;2. Imperial College London, University of Rome II and CEPR. e‐mail: t.valletti@imperial.ac.uk |
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| Abstract: | When a buyer is able to obtain lower input prices from a supplier, is it possible that other buyers will have to pay more for the same input as a result? Is this bad for consumers? We present a model that analyzes the conditions under which the asymmetric exercise of buyer power can lead to consumer detriment through raising other buyers' wholesale prices (the ‘waterbed effect’). |
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