Study On Buyer Power Of Retailers

In recent years, the world has witnessed considerable changes in retailing with the general upsurge of large retailers and the significant increase of the retail market concentration. The success of reducing consumers'purchase cost and the efficency of inventory control have allowed large retailer to reap economies of scale and scope. At the same time, the consumer demand has become rare resource to enterprises owing to the excess products in market. Retailer can obtain more consumer information with low cost than supplier, which makes retailers dominant in their business deal with suppliers. Retailers' buyer power is being reinforced in upstream market now.The conception of buyer power is opposing the conception of seller power. Research on market power has only focused on the seller power in classical economics although buyer power is another form of market power. Since the 1950s, the theory of industrial organization has been concerned about the topic of the vertical restraints between manufacturers and dealers. In 1990s', there were growing literatures on retailers' buyer power abroad because more and more vertical restraints implemented by retailers in the market. Yet, some questions should be answered: how to define the buyer power? how to build a more formal study framework to buyer power? how to evaluate the efficiency of buyer power based on a united efficiency benchmark? Taking account of the reality that retailers own buyer power, this thesis systematically researches the retailers' buyer power following the form of structure-conduct-performance, which is significantly valuable both in the theory and in the pratice. Firstly, the study of buyer power can complete the theory of market power. Secondly, this thesis introduces the S-C-P form of industrial organization into the study of retailers' buyer power on the industrial-chain-background, which not only gives a new perspective on the economical rule of retailers' buyer power but also develops a researching method of the market power. lastly, after identifying the sources of the retailers' buyer power and evaluating the potential impacts of buyer power, we can give relevant suggestions on the public policy of Chinese retail industry.This thesis contains seven chapters: the introduction, the review on the relevant literature, the definition of the buyer power and its sources, the conducts of the retailers exerting their buyer power, the welfare effect of the retailers' buyer power, the reality of retailers' buyer power in Chinese domestic market and suggestion on the antitrust, the conclusion and the prospect. Following the path of Structure-Conduct-Performance Form, this thesis firstly defines the retailers' buyer power according to the structure of markets proposed by Heinrich von Stackelberg(1934). Also two forms of buyer power-the monopsony power and the buyer bargaining power are distinguished. Moreover, the sources of the retailers' monopsony power were discussed via a market interface while the sources of the retailers' bargaining power were analysed via a bargaining game interface. Secondly, the conducts exercised buyer power by retailers is studied. In this part, more attention was paided on the vertical restraints implemented by retailers who own bargaining power. Subsequently, according to the competing conditions of suppliers, two benchmarks-the longterm efficiency benchmark and the shortterm efficiency benchmark—are settled to evaluate the social welfare of retailers' buyer power. Then the impact of retailers' bargaining power on the relevant individuals is evaluated. Lastly, this thesis identifies the reality of retailers' buyer power in domestic market through discussing the main form of retailers' buyer power and the sources of it in Chinese market and surveying the practice of vertical restraints implemented by powerful retailers. Also some suggestions are proposed on the antitrust regulation of retailers' buyer power in this thesis.In addition to the form of S-C-P as the main research methods in this thesis, some other research methods are also applied in it, such as the game theory, the partial equilibrium competitive analysis, the unification of comparative statics analysis and dynamic analysis, the method based on model analysis and positive analysis. Four conclusions are drawn in this thesis:①There are two forms of buyer power-the monopsony power and the buyer bargaining power. the retailers' monopsony power is influenced by factors such as the number of retailers in industrial chain, the supply conditions in upstream market and the demand conditions in downstream market, while the comparative dependence of retailers(suppliers) to another side influences the retailers' buyer bargaining power.②Except for the contraction of purchase, the conducts of retailers' exerting their buyer power also includes the vertical restraints implemented by the retailers who own buyer bargaining power. Though the essential incentive of the vertical restraints retailers imposing on suppliers is to maximize their benefit through eliminating various externalities in the industrial chain, some vertical restraints implemented by retailers such as slotting fees could cause the exclusive dealing, thus dampening the competition.③while the monopsony power would cause deadweight loss of social welfare, the buyer bargaining power of retailers might improve the social welfare.④As the buyer bargaining power is the key form of retailers' buyer power in domestic market nowadays, the authorities should consider the retailers' comparative economic advantage status and regulate their practice of exerting buyer power in accordance with The Antitrust Law.There exist three innovative ideas in this thesis:Firstly, two forms of buyer power- the monopsony power and the buyer bargaining power- are distinguished in this thesis. the monopsony power and the buyer bargaining power are defined based on the structure of markets proposed by Stackelberg, which can give a uniform background to analyze buyer power. Though vertical restraints implemented by retailers have recently received considerable attention in our country, most research on this topic took the buyer power equal to the monopsony power, which was apt to be at a loss when analyzing the welfare of the buyer power. The distinction of monopsony power and buyer bargaining power can help us to find more effectual method of welfare analysis and to ensure the creditability of the conclusion.Secondly, the shortterm efficiency benchmark to the welfare evaluation of buyer power is settled with the longterm efficiency benchmark. This thesis introduces the efficiency benchmark of vertical industrial chain proposed by Yu Yi-Hong(2005) as the longterm efficiency benchmark in this study. At the same time, it's noticed that the other side of market is always assumed to be in complete-competition conditions in traditional economics, while in this study, the suppliers in upstream market are not always in complete-competition, the thesis settles the shortterm efficiency benchmark-the efficiency of the market condition that retailers are in complete-competition not only in upstream market but also in downstream market while the other conditions are given. After evaluating respectively the welfare of each form of buyer power, this thesis concluds that the retailers' buyer bargaining power could bring an improvement of social welfare according to the shortterm efficiency benchmark, which provides a proof to the existence of countervail power proposed by Galbraith(1952).Lastly, it is suggested that the comparative economical advantage status should be the criterion when judging the retailers' buyer power in accordance with The Antitrust Law in china. Because of their small size, retailers in Chinese market are not in dominant position at any market in accordance with The Antitrust Law. However, some practices of buyer power in upstream market have antitrust intention to a certain extent, which should be regulated by the Antitrust Law. Based on the theoretical analysis of buyer bargaining power, this thesis suggests that the market dominant position in The Antitrust Law should be extended to the comparative economical advantage status. Also, some concrete advices on the antitrust regulating process of the abuse of retailers' buyer power are given.