How Strong Buyers Spur Upstream Innovation

We challenge the view that the presence of powerful buyers stifles suppliers´ incentives to innovate. Following Katz (1987), we model buyer power as buyers´ ability to substitute away from a given supplier and isolate several effects that support the opposite view, namely that the presence of powerful buyers induces a supplier to invest more in cost reduction. In contrast in negotiations with smaller buyers, the outcome of negotiations with large buyers is fully determined by their more valuable alternative supply option. This increases the supplier´s incentives to reduce marginal costs, both as the supplier receives a larger fraction of the thereby generated incremental profits and as this makes buyers´ alternative supply option less valuable. The latter effect is due to downstraem competition between buyers and, as we show, is also stronger the larger and thus the more powerful buyers are

Private Infrastructure Finance and Investment in Europe

This study discusses the structure and development of private infrastructure finance in Europe in a global context. It examines the contribution of private capital to the financing of infrastructure investment needs. A 'big picture' is created by putting the various financing instruments and investment vehicles into a simple frame, i.e. percentages of GDP. There is scope for the development of alternative financing arrangements (such as public-private partnerships) and investment vehicles (such as project bonds and suitable investment funds). However, the traditional ways of corporate (and public) capital expenditure as well bank lending, need to keep working in Europe. Institutional investors can play a bigger role as a source of finance but expectations should be realistic. There are a number of barriers in place, regulatory and otherwise, that need to be worked on

The smart grid as commons: exploring alternatives to infrastructure financialisation

This paper explores a tension between financialisation of electricity infrastructures and efforts to bring critical urban systems into common ownership. Focusing on the emerging landscape of electricity regulation and e-mobility in the United Kingdom (UK), it examines how electricity grid ownership has become financialised, and why the economic assumptions that enabled this financialisation are being called into question. New technologies, such as smart electricity meters and electric vehicles, provide cities with new tools to tackle poor air quality and greenhouse gas emissions. Electricity grids are key enabling infrastructures but the companies that run them do not get rewarded for improving air quality or tackling climate change. UK government regulation of electricity grids both enables financialisation and forecloses opportunities to manage the infrastructure for wider environmental and public benefit. Nonetheless, the addition of smart devices to this network - the ‘smart grid’ – opens up an opportunity for common ownership of the infrastructure. Transforming the smart grid into commons necessitates deep structural reform to the entire architecture of infrastructure regulation in the UK

An empirical analysis of countervailing power in business-to-business bargaining

Pricing schemes in business-to-business (B2B) relationships reflect price discrimination and bargaining over rents. Bargaining outcomes are determined by upstream market power and countervailing buyer power downstream. This paper uses an exceptional panel of B2B transactions in the UK brick market to study B2B transaction prices. The empirical analysis identifies three effects on prices: nonlinear volume and freight absorption effects; countervailing power effects arising from buyers' local commercial significance; and competition effects due to the buyers' local potential suppliers. And it shows that small buyers benefit more from competition than large buyers because they are not constrained by the suppliers' capacity

What Factors Determine the Number of Trading Partners?

The purpose of the paper is to provide a simple model explaining buyer-supplier relationships and show what factors determine the number of trading partners. We show that when the supplier is able to determine the number of trading partners, the optimal number is small if the supplier's bargaining power with them is weak, the economy of scope in the supplier's variable costs is significant, and that in its sunk investment is weak. Investment may be greater when the number of trading partners is small. The results may be consistent with the formation of Japanese buyer-supplier relations