BUYER POWER IN

DISTRIBUTION
by Roman Inderst' and Nicola
Mazzarottot

Presented by:
Taimur Nasser
Amaima Farzoq
Ammar Farooq
Haris Aftab
 Brief overview of the article
 Literature is on buyer power
 Emphasis on retailers.

Stage one:
o Identify sources of buyer power.
Stage two:
o Analyze channels which exercise the buyer power to
create competitive harm.
o Effects on suppliers.
o Incentives to invest.
o “waterbed” effect on rivals.
Stage three:
o Policy responses.
 Objectives of the study
 Goods have to cross many distribution
channels before reaching the final stage.
1. Review this recent work on buyer power.
2. Providing an economic perspective on a range
of issues, like buyer power in policies.
 Stage One: Sources of buyer power
 The Framework
o It is presumed that up-and down stream firms
interact in the ‘market’.
o Buyer power represents the perfect mirror image of
seller power.
o It has to be the case that purchasing a higher
quantity pushes up the market price.
o No scope for buyer to exert power by obtaining an
‘individual discount’.
 Cont.
 Only way to achieve a lower price, namely by
withholding demand, also benefits all other
buyers.
 A monopoly supplier with the ability to price
discriminate could offer its buyers different
discounts not because of differences in
bargaining strength, but because they have
derived demands.
 Buyer power in retailing
 Three fundamental changes in retail sector in
the 20th century:

1) Rise of chain grocery stores.

2) Rise in super market format.

3) Takeover by large retailers of very powerful
branded goods manufacturers.
 Buyer power in retailing depends
on factors like:
 Retailer’s size
 Large retailers have high buying power because of their bulk purchase.
 Incur less costs.
 More knowledgeable about alternative sources in market.
 Competitive edge over others.
 Have capacities to store inventory and gain in times of inflation.

 Retailers gate keeping function:

 Retailers keep a gate keeping function in controlling supply.
 Sales made through a small retailer acts as a monopolist.
 While goods from large retailers operate in highly competitive market
 Cont.
 Supplier’s dependency:
 Depends on suppliers financial condition.
 Flexibility in supply.

 Private labels:
 Like Al-Fatah and HKB in Pakistan.