Market power, how to measure it? DGCCRF’s workshop
At the DGCCRF’s workshop on “the distributor’s buying power, competition and abuse of economic dependency” on June 17, 2015, Laurent Benzoni gave a presentation on the buying power.
His presentation aimed to expose and define the different effects of buying power.
Buying power: how to measure it ? by L. Benzoni & A. Journo
In OECD countries, when buyers try to exercise their market power against producers to protest the concentration of consumer goods there is a stalemate. Competition authorities are consequently looking to see if buyer concentration has not reached new highs and authorities are seeking to protect producers from potential distribution clout, spurred by buyers
The distributor’s buying power increases when the supplier’s negotiation options narrow and become more costly. Since the two sides do not come to the negotiation table as equals, the suppliers are economically dependent on the distributors. In previous concentration of distribution cases, the European Commission used a “threat rate” to assess the level of dependence. This rate is measured by a distributor’s revenue share of its suppliers. If the rate exceeds 13%, then the supplier is dependent on this distributor because ending the business relationship would dampen the supplier’s activity, perhaps definitely so. The distributor’s commitment is therefore the key in a merger to ensure that the distributor and the supplier continue doing business together. As this threat rate is very simple, other measures may offer a better view of the state of balance or imbalance between distributors and suppliers.