Working Paper: CEPR ID: DP2908
Authors: Chiara Fumagalli; Massimo Motta
Abstract: Miscoordination of buyers might prevent entry in an industry with an incumbent and a more efficient potential entrant. Buyers' power therefore favours entry by eliminating coordination problems. We also identify a mechanism which facilitates entry: if the potential entrant could credibly offer to pay a penalty for unfulfilled orders, miscoordination would be eliminated. Without the penalty, we show that downstream competition also facilitates entry. The stronger the competition among buyers the less likely that miscoordination arises.
Keywords: contractual clauses; countervailing power; entry; exclusion; miscoordination; retailers
JEL Codes: D40; L13; L22; L40; M21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| miscoordination among buyers (L14) | market entry (L17) |
| buyers' power (D41) | market entry (L17) |
| buyers' power (D41) | miscoordination among buyers (L14) |
| penalty for unfulfilled orders (C69) | miscoordination among buyers (L14) |
| downstream competition among buyers (L11) | miscoordination among buyers (L14) |
| downstream competition among buyers (L11) | market entry (L17) |