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When Do Large Buyers Pay Less? Experimental Evidence

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  • Bradley J. Ruffle
Abstract
The rise in mega-retailers has contributed to a growing literature on buyer power and large-buyer discounts. According to Rotemberg and Saloner (1986) and Snyder (1998), large buyers' ability to obtain price discounts depends on their relative (rather than absolute) size and the degree of competition between suppliers. I test experimentally comparative statics implications of this theory concerning the number of sellers and the sizes of the buyers in the market. The results track the comparative statics predictions to a surprising extent. Subtle changes in the distribution of buyer sizes or the number of suppliers can create or negate large-buyer discounts. The results highlight the previously unexplored role of the demand structure in determining buyer-size discounts. Furthermore, the experiments establish the presence of small-buyer premia, not anticipated by the theory.
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Suggested Citation

  • Bradley J. Ruffle, 2013. "When Do Large Buyers Pay Less? Experimental Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 61(1), pages 108-137, March.
    • Handle: RePEc:bla:jindec:v:61:y:2013:i:1:p:108-137
    DOI: 10.1111/joie.2013.61.issue-1
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    Cited by:

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    4. Jeon, Doh-Shin & Menicucci, Domenico, 2019. "On the unprofitability of buyer groups when sellers compete," Games and Economic Behavior, Elsevier, vol. 115(C), pages 265-288.
    5. Orland, Andreas & Selten, Reinhard, 2016. "Buyer power in bilateral oligopolies with advance production: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 31-42.
    6. Normann, Hans-Theo & Rösch, Jürgen & Schultz, Luis Manuel, 2015. "Do buyer groups facilitate collusion?," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 72-84.
    7. Brokesova, Zuzana & Deck, Cary & Peliova, Jana, 2014. "Experimenting with purchase history based price discrimination," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 229-237.
    8. Andrew Kloosterman, 2019. "An Experimental Study of Public Information in the Asymmetric Partnership Game," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 663-690, January.

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    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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