B2B market formation and welfare implication in a buyer’s market

Abstract

The emergence of B2B electronic markets has greatly changed the relative bargaining power of buyers and sellers. We study the equilibrium market structure in a buyer’s market. We find that buyer-controlled B2B markets and neutral B2B markets have different equilibrium structures, and the emergence of B2B markets will increase social welfare, but its effect on buyers and sellers will be different: B2B markets increase the consumer surplus of the end market, but their effects on buyer and seller profits are moderated by the relative bargaining power of buyers and sellers. The profits of the side with much weaker bargaining power will decrease due to the introduction of B2B markets.

Keywords

B2B market / e-commerce / social welfare / game theory

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