Countervailing Power and Consumer Prices

This paper considers the importance of countervailing power, manifested as the effects of increased retail concentration on consumer prices and welfare within a market setting where imperfectly competitive retailers negotiate intermediate prices with a monopoly supplier. Only when retailer services are regarded as very close substitutes do final prices fall following a reduction in the number of retailers. Even in these circumstances, the social benefits of countervailing power may not be realised as the supplier may seek to protect its profits by using a refusal to supply restraint to engage in exclusive trading.