Market Power in Supply Chains

As supply chains have grown in sophistication and complexity, so too have the competition issues they raise. Years of consolidation and rising concentration in the critical middle segments of major supply chains have created market power “bottlenecks.” These bottlenecks have a number of important implications. For example, dominant firms and oligopolies in these middle markets can often exercise market power on both the buyer side and seller side. Moreover, strong incentives for players to bulk up to counter the bargaining power of suppliers and distributors has exacerbated consolidation, with serious implications for the stability and resiliency of supply chains—as we have seen during the COVID-19 pandemic. This article examines the problem of market power in supply chains using the pharmaceutical and food & agriculture sectors as mini-case studies. It highlights weak merger control in the U.S. as a source of the problem and highlight key priorities for strengthening enforcement to address it. 

By Diana L. Moss^[1]

I. INTRODUCTION

Supply chains in critical sectors are becoming more complex. A number of factors may account for this, including the rise of middlemen that facilitate transactions between levels, sophisticated risk management and trading services, especially in commodities markets; large information technology platforms; value-added processing; and multi-channel distribution. Supply chains came sharply into focus during the COVID-19 pa