Buying Power of Multiproduct Retailers

Many OECD countries’ competition agencies have been under pressure to take action against the exercise of buyer power by large multiproduct retailers. In several countries, such pressure has been accompanied by the adoption of legal provisions designed to counter abuses of “economic dependence” or to strengthen prohibitions attaching to price discrimination and loss leading. Although there may be valid efficiency justifications for prohibiting the exercise of buyer power by multiproduct retailers, there are also significant risks in doing so. Ill advised enforcement could amount to protecting inefficient distributors at the expense of consumers. This kind of buyer power, which is extensively discussed in the analytical note, is quite different from classic monopsony power to push prices below competitive levels by reducing purchases. Instead, the focus here is on what might more accurately be described as negotiating power, particularly in situations where upstream suppliers have market power. Profit maximising distributors would try to reduce their suppliers’ rents. Where distribution is competitive, multiproduct retailers would use negotiating power to reduce those rents and pass them on to consumers. As long as distribution is sufficiently competitive, exercise of this kind of multiproduct retailer “buyer power” will tend to benefit consumers