Anticompetitive Overbuying by Power Buyers

Two types of single-firm overbuying are analyzed in this article. Predatory overbuying consists of overbuying inputs as a predatory strategy to cause buyer-side competitors in the input market to exit from the market or permanently shrink their capacity in order to gain monopsony power in the input market. Raising Rivals' Costs (RRC) overbuying consists of overbuying inputs as an exclusionary strategy to raise rivals' input costs and thereby gain market power in the output market. In most cases, the additional input purchases are used to produce output. However, in unusual cases a firm may engage in naked overbuying, that is, purchasing an input solely to deny it to rivals and then simply discarding the input.