Buyer power and exclusion in vertically related markets

We explore how the incentives for exclusion, both in upstream and downstream vertical markets, are related to the bargaining position of suppliers and retailers. We consider a model with a dominant upstream manufacturer and a competitive fringe of producers of imperfect substitutes offering their products to two differentiated downstream retailers. In this model we contrast the equilibrium outcome in two alternative situations. The first one is when the dominant supplier holds all the bargaining power, and this is compared with the outcome when the retailers have all the bargaining power. We show that exclusion occurs when interbrand and intrabrand competition is strong. Moreover, in contrast to the received literature, we find that when retailers have buyer power, this enhances welfare compared to when the manufacturer holds all the bargaining power.