Author(s)
Source
Akron Law Review Vol. 39, No. 1, pp. 207-243, 2006
Summary
This article looks at how competition law treats firms that buy in large quantities, like Walmart.
Policy Relevance
Attempts to develop new laws and theories to limit large retailers’ “buyer power” add little to our understanding of competition, and could harm consumers.
Main Points
- Chains like Walmart and supermarkets have grown up. Some ask whether firms that buy in such large quantities can force sellers to reduce their prices too low.
- The United States Federal Trade Commission, the OECD, and Canadian competition agencies now look at “buyer power” issues, especially in mergers and in supermarket cases. Some argue that these issues need new competition law theories and rules.
- “Buyer power” does not really raise new and different antitrust issues.
- The relationships up and down the supply chain from producers to retailers are complex, but competition authorities should focus on whether or not the ultimate consumer is harmed or helped.
- One theory is that large buyers can raise their rivals’ costs. In reality, this is unlikely to result in harm to competition or consumers.
- E.g. food producers pay supermarkets for shelf space, perhaps raising rivals’ costs by forcing them to buy shelf space in turn. But this is unlikely to advantage any one producer, as it raises costs for all, the market for shelf space is competitive, and most contracts for the best shelf space last only a short term.
- Some markets have few buyer firms and few seller firms, but both sides are sophisticated. Courts do little good by interfering unless there is harm to competition.
- It makes sense for competition law authorities to look at mergers that reduce retail competition, but no new legal principles are needed to address buyer power.
- In Europe and the U.K., authorities express concern with producers’ dependence on retail outlets. “Dependence” is too vague to help competition analysis.