This paper considers the importance of countervailing power, manifested as the effects of increased retail concentration on consumer prices and welfare within a market setting where imperfectly competitive retailers negotiate intermediate prices with a monopoly supplier. Only when retailer services are regarded as very close substitutes do final prices fall following a reduction in the number of retailers. Even in these circumstances, the social benefits of countervailing power may not be realised as the supplier may seek to protect its profits by using a refusal to supply restraint to engage in exclusive trading.
Across the European Union, concentration in food retailing at the national level has been increasing for some time, but increasingly multinational retailers have been extending their international reach. In the process, aggregate concentration has risen sharply over the last few years. In addition, the presence of buyer groups, representing different retail interests, adds to the characterisation of procurement markets as highly concentrated. Also at the aggregate level, cross‐border buyer alliances amongst large retailers have emerged. We consider the implications of these features for the changing patterns of retail competition and the impact on food producers, supplier competition and economic welfare.
Chain‐stores now dominate most areas of retailing. While retailers may operate nationally or even internationally, the markets they compete in are largely local. How should they best operate pricing policy in respect of the different markets served—price uniformly across the local markets or on a local basis according to market conditions? We model this by allowing local market differences, with retail markets differing by their size and the number of players present. We show that practising price discrimination is not always best for a chain‐store. Competitive conditions exist under which uniform pricing can raise profits.
It is common, but incorrect, to view retailing as a highly competitive activity. Unlike manufacturing, retailing has displayed a trend towards much higher concentration, reinforced by actions of retailers themselves, such as emphasis on own-label brands. This may introduce distortions arising from exercise of market power or may create countervailing power to that already enjoyed by manufacturers. Acknowledging increased market power within retailing raises new issues for competition authorities. We develop a consistent framework of analysis and use it to examine two issues: attitudes to retail mergers and exclusivity arrangements between retailers and their suppliers. Copyright Centre for Economic Policy Research, Centre for Economic Studies, Maison des Sciences de l'Homme 1999.
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