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This paper analyzes the welfare implications of buyer mergers when one monopoly manufacturer sells its product to many locally competitive retail markets. Assuming diseconomies of scale upstream, we show that a larger retailer gets size discounts from the supplier, i.e., it has a higher buyer power than smaller retailers. Different from the conventional argument that more buyer power reduces retail prices, we show that a larger retailer does not pass on size discounts to consumer prices when firms bargain over non-linear supply contracts. Moreover, size discounts for the larger buyer do not lead to higher tariffs for smaller buyers, i.e., there is no waterbed effect, when supply contracts are non-linear.