Title: Buyer power with atomistic upstream entry: Can downstream consolidation increase production and welfare?
Abstract: This paper investigates the effects of buyer power on entry into an atomistic upstream market and economic welfare. Under reasonable market conditions, we show that industries with a few buyers induce more upstream entry than industries with a larger number of firms. In particular, monopsony can be more conducive to entry and lead to higher social welfare than more fragmented industry structures. This seeming paradox arises because a single buyer better internalizes the positive effects of entry on later-periods’ supply conditions than a collection of firms. This result is relevant in a number of market settings, including markets for specialized labor and processing markets for agricultural products.
Publication Year: 2016
Publication Date: 2016-12-12
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 19
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