"Buyer Power" and Economic Policy

The rise to prominence of Wal-Mart and other big-box retailers has given new life to the debate about whether at intermediate links in a vertically related chain of industries is good or bad for consumers and hence whether it requires the attention of competition authorities. The term is rarely precisely defined, but as used by most commentators refers to the circumstance in which the demand side of a market is sufficiently concentrated that buyers can exercise market power over sellers. A buyer has market power if the buyer can force sellers to reduce price below the level that would emerge in a competitive market. Thus, buyer power arises from monopsony (one buyer) or oligopsony (a few buyers) , and is the mirror image of monopoly or oligopoly. Like monopoly, the motivation behind monopsony behavior is to transfer wealth in the form of economic rents from one side of the market to the other.