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Peter C. Carstensen

This chapter describes the harms to competition that can result from the abuse of buyer power. It starts with an analysis of harms resulting from exploitation that include depressed prices, discrimination among producers, uncompensated shifting of risks and costs to producers and the potential that the harms will flow upstream to suppliers of the supplier. It then describes the exclusionary harms that buyer power can cause to competitors of the buyer both as buyers and in any downstream markets where they compete. These practices include exclusive contracts, inducing refusals to deal by producers, most favored nation type clauses in buying contracts and predatory buying practices that increase the cost of inputs to competitors of the buyer. The final part of the chapter argues that abuse of buyer power generally and monopsony in particular is more harmful to the competitive process than is abuse of monopoly.

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Peter C. Carstensen

This chapter identifies, describes and evaluates alternative ways to limit or regulate the abuse of unilateral buyer power. The first category is that of more general regulation of conduct which can specifically address strategic conduct by dominant buyers, provide overall regulation of market participants regardless of power, set floors or other constraints on transactions, or provide sponsorship for alternative outlets for producers. The second category involves creating off-setting power in producers either by authorizing producer cartels or permitting integration, vertical or horizontal, by producers. Finally, public authorities can create alternative markets for producers. Each of these strategies has some capacity to limit abusive buyer conduct, but each is also fraught with difficulties both in defining standards and in achieving the goal of constraining buyer abuses. The implication, consistent with Chapter 5, is that remedying buyer power problems once the power exists is likely to have only limited effectiveness.

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Peter C. Carstensen

This chapter addresses the choice of goals for competition law and policy. It describes goals based on economic theory (maximizing consumer welfare, aggregate welfare or producer welfare), fairness in the competition and promoting and protecting the competitive process itself. The chapter argues that the last of these options is the best basic goal because neither economic theory nor fairness provide a coherent basis for policy over time given the dynamics of markets and the ambiguity of both economic theory and fairness. But even the goal of promoting and protecting the competitive process is not self-defining because determining the appropriate degree of legal intervention is dependent on the assessment of the risks to the competitive process if there were no intervention. Given the many examples of market failure, the chapter concludes that the legal system must provide significant oversight of the competitive process in order to ensure the long-term viability of the competitive process.

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Peter C. Carstensen

This chapter addresses merger policy where the merger will enhance buyer power. By forbidding such mergers, it is possible to limit the emergence of buyer power. The chapter shows, first, that such mergers create competitive risks analogous to those created by mergers that increase seller power, but it also focuses on the ways in which buyer side effects are distinct because of potential harms from even modest increases in buyer concentration, the greater durability of buyer power (compared to seller power), and the potential that the effects of such mergers will primarily impact upstream markets rather than the one most directly changed by the merger. This analysis leads to a discussion of buyer side merger analysis including market definition, the market share triggers for concern and the defenses that might be considered. The chapter ends with a review of actual enforcement of merger law with respect to buyer issues in the United States, the EU, and elsewhere in the world. The basic conclusion from that review is that buyer side concerns are significantly under-emphasized in contemporary merger enforcement.

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Peter C. Carstensen

This chapter summarizes the central points of this book. It reiterates the conclusion that buyer power is a significant threat to the competitive process. But consistent with Chapters 5 and 6 control of such power once it exists is difficult. For that reason, competition policy should focus on policies that can avoid or limit the creation of such power. Specifically, this means that a robust merger standard and clear limits on the scope of buying groups are key components for competition policy. The chapter also argues that the scope of the buyer power problem is more pervasive than most common illustrations, including those relied on in this book, might suggest. Lastly, the chapter points out that the global nature of many of the buyer power issues identified means that existing national law enforcement may be unable to provide effective control even if it has the appropriate policies. While this issue is beyond the scope of this specific project, it is an important one for competition policy generally and especially for policy to control abusive buyer power.

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Peter C. Carstensen

This chapter examines the actual and potential rules that can govern abusive unilateral conduct by buyers. It reviews existing laws on both exploitation and exclusion as well as the potential remedies available for such conduct. It concludes that there are serious impediments to effective definition of standards to govern such conduct as well as to remedy it. These difficulties are especially significant when the abuse is exploitive. Exclusionary abuses are more remediable but that requires a stricter standard than is currently used. Moreover, even such remedies may not restore workably competitive buying markets. The chapter also examines the potential for structure remedies, that is, restructuring the buyer side of the market, which, while promising in theory, are both unlikely and present serious problems of defining the conduct that would justify such intervention. The conclusion is that direct remedy for unilateral abuse of dominant buyer power is very difficult and so every effort should be made to avoid allowing such power to be created.

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Peter C. Carstensen

This chapter evaluates competition policy toward buyer cartels and buying groups. It starts by defining the two categories. It then argues that despite some plausible theoretical arguments for buyer cartels their overall impact on the competitive process makes them a serious risk that should generally be avoided. In limited circumstances, such cartels may be deemed in the public interest, but if so, a public authority must closely regulate and oversee such activity. Buying groups, on the other hand, are likely to add to market efficiency and so should be allowed unless they incorporate such a large share of buying that they create an undue risk of buyer power. If a group must have a substantial share to achieve efficiency, it rules and conduct must be closely examined to avoid unnecessary risk to competition. In most instances, such levels of concentration are unnecessary to achieve the efficiency enhancing effects of buyer groups. Hence, such groups should not be allowed to exist. The chapter also briefly reviews the analysis of vertical restraints imposed by buyers on producers. Chapter 5 had addressed this topic as well. Strict controls over the creation of undue buyer power and buyer cartels will enhance the overall competitive process because this will avoid the creation of the kind of power that Chapters 5 and 6 showed to be difficult or impossible to regulation.

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Peter C. Carstensen

This book provides a comprehensive overview of the economic and competition policy issues that buyer power creates. Drawing on economic analysis and cases from around the world, it explains why conventional seller side standards and analyses do not provide an adequate framework for responding to the problems that buyer power can create. Based on evidence that abuse of buyer power is a serious problem for the competitive process, the book evaluates the potential for competition law to deal directly with the problems of abuse either through conventional competition law or special rules aimed at abusive conduct. The author also examines controls over buying groups and mergers as potentially more useful responses to risks created by undue buyer power.
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Peter C. Carstensen

This chapter provides an analysis of buyer power and its measurement. It starts by pointing out that for competition policy the distinction between ‘monopsony’ and ‘buyer power’ is only a matter of degree. A firm possessing either form of power can engage in abusive conduct. Hence, the appropriate focus is on the potential for abuse rather than some abstract label. Buyer power can be usefully separated into two categories. The first involves situations where the buyer is obtaining inputs or components for its product. The second situation involves the distribution of branded consumer goods. The sources of power in the two situations are different and the structural thresholds of concern are also different. Branded good producers need a wide range of outlets and so can be more vulnerable to exploitation of buyer power by multiple buyers than component producers who only need to have sufficient options for sales. The chapter concludes by identifying three factors that increase the potential for buyer power exploitation: the buyer is usually the key decider with respect to both purchase in general and from whom to purchase, arbitrage is much less feasible for producers relative to the options that buyers have, and the nature of buying markets makes self-correction by the market of buyer power inherently more difficult.

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Peter C. Carstensen

This chapter describes the harms that abuse of buyer power causes including both exploitation of producers and exclusion of competing buyers. It highlights the global dimensions of the problems that abuse of buyer power is causing.