The countervailing power hypothesis in the dominant firm-competitive fringe model

- Correcting for payoffs and outside options in Chen (2003), new results emerge.
- Countervailing power is neutral in the linear dominant firm-competitive fringe model.
- Neutrality result is independent of the fringe size.
- The profits of the dominant retailer never decrease with a rise of his buyer power.

In the dominant firm-competitive fringe model, where firms purchase input from a common supplier via two-part tariff contracts, we demonstrate that countervailing power may be neutral. Unlike Chen (2003), more countervailing power may not lead to lower consumer prices.