Retail Mergers, Buyer Power and Product Variety

This Paper analyses the impact of retail mergers on product variety. We show that a merging firm may want to enhance its buyer power vis a vis suppliers by delisting products and committing to a ‘single-sourcing’ purchasing strategy. Anticipating this, suppliers will strategically choose to produce less differentiated products, which further reduces product variety. If negotiations are efficient the loss in product variety reduces overall industry profit and, possibly, also consumer welfare. With linear tariffs, however, there may be a countervailing effect as the more powerful retailer passes on lower input prices to final consumers.

[1]  Patrick DeGraba.  Quantity Discounts from Risk Averse Sellers , 2005 .

[2]  Christopher M. Snyder,et al.  Do Buyer-Size Discounts Depend on the Curvature of the Surplus Function? Experimental Tests of Bargaining Models , 2006 .

[3]  S. Burt.  Buyer Power and Competition in European Food Retailing , 2003 .

[4]  József Sákovics,et al.  Auctions for Split-Award Contracts , 2003 .

[5]  Eric T. Anderson,et al.  A Bargaining Theory of Distribution Channels , 2003 .

[6]  Roman Inderst,et al.  Buyer Power and Supplier Incentives , 2003 .

[7]  P. Dobson.  Retailer Buyer Power in European Markets: Lessons from Grocery Supply , 2002 .

[8]  Roger Clarke,et al.  Buyer Power and its Impact on Competition in the Food Retail Distribution Sector of the European Union , 2001 .

[9]  Roman Inderst,et al.  Market Structure, Bargaining, and Technology Choice , 2000 .

[10]  D. Biggar.  Buying Power of Multiproduct Retailers , 1999 .

[11]  Christopher M. Snyder,et al.  The Role of Firm Size in Bilateral Bargaining: A Study of the Cable Television Industry , 1999, Review of Economics and Statistics.

[12]  Paul W. Dobson,et al.  Retailer power: recent developments and policy implications , 1999 .

[13]  Discount Chains and Brand Policy , 1999 .

[14]  M. Whinston,et al.  Exclusive Dealing , 1996, Journal of Political Economy.

[15]  G. Shaffer,et al.  Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure , 1997 .

[16]  Paul W. Dobson,et al.  Countervailing Power and Consumer Prices , 1997 .

[17]  Christopher M. Snyder.  A Dynamic Theory of Countervailing Power , 1996 .

[18]  T. Ungern-Sternberg,et al.  Countervailing power revisited , 1996 .

[19]  Patrick Rey,et al.  The Role of Exclusive Territories in Producers&Apos; Competition , 1994 .

[20]  M. Whinston,et al.  Multiproduct Monopoly, Commodity Bundling, and Correlation of Values , 1989 .

[21]  James J. Anton,et al.  Split-Awards Procurement and Innovation , 1989 .

[22]  Asher Wolinsky,et al.  BILATERAL MONOPOLIES AND INCENTIVES FOR MERGER , 1988 .

[23]  M. Katz.  The Welfare Effects of Third-Degree Price Discrimination in Intermediate Good Markets , 1987 .

[24]  A. Rubinstein,et al.  The Nash Bargaining Solution in Economic Modelling (Now published in Rand Journal of Economics, vol.17 (1986), pp.176-188.) , 1985 .

[25]  A. Rubinstein,et al.  The Nash bargaining solution in economic modelling , 1985 .

[26]  Thomas R. Palfrey,et al.  Bundling Decisions by a Multiproduct Monopolist with Incomplete Information , 1983 .

[27]  Janet L. Yellen,et al.  Commodity Bundling and the Burden of Monopoly , 1976 .

[28]  G. Stigler.  A Theory of Oligopoly , 1964, Journal of Political Economy.