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Buyer Power and Supplier Incentives

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This paper argues that - in contrast to an often expressed view - the formation of larger and more powerful buyers need not reduce welfare by stifling suppliers´ incentives. If contracts are determined in bilateral negotiations, the presence of larger buyers may both increase suppliers´incentives for product improvement and induce suppliers to choose a more efficient technology. The paper also isolates two di¤erent channels by which larger buyers can obtain a discount.

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Roman Inderst, Christian Wey

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Adapt according to the presented license agreement and reference the original author.