Retailer power: recent developments and policy implications

Abstract

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.

Cartelization Through Buyer Groups

“…10 The retailers costlessly transform one unit of input into one unit of output, and face continuously differentiable 10 In Section 5, we argue that buyer power generated through the buyer group actually reinforces our results.…”

“…4 In a dynamic environment, however, similar to the stability concerns of a standard output market cartel, the stability of an anticompetitive buyer group depends on the ability and incentives of retailers to cheat on the buyer group by secretly signing an additional contract outside of the anticompetitive arrangement at a lower input price. Such a move allows the deviant retailer to 1 See, for example, Dobson and Waterson (1999). Some buyer groups exist within a single market segment such as the Independent Grocers Association (IGA), which is the world's largest voluntary supermarket network with aggregate worldwide retail sales of more than $21 billion per year.…”

How to combine high sunk costs of exporting and low export survival

“…The increased power of retailers (see Dobson et al, 1999) implies, for example, that manufacturers and retailers bargain over exclusivity arrangements, and this is related to irreversible legal costs. Such agreements may also lead to exit costs if they include an obligation regarding the quantity of goods to be sold and therefore, by extension, some type of break-up fee if the exporting firm leaves a particular market.…”

“…Such agreements may also lead to exit costs if they include an obligation regarding the quantity of goods to be sold and therefore, by extension, some type of break-up fee if the exporting firm leaves a particular market. In addition, the increased market power of retailers also suggests, as indicated by Dobson et al (1999), that retailers charge manufacturing firms for accessing prime shelf-space (i.e. slotting allowances) as well as for local advertising (market development funds).…”

A Comparison of the Wholesale Model and the Agency Model in Differentiated Markets

“…From both law and economics perspectives, contemporary vertical restraint theory recognises retailing as a distinct stage of vertical relations and that it is a mistake to neglect the role of intrabrand competition in affecting consumers' choices, as well as the exercise of countervailing power (e.g., Steiner 1991;Dobson and Waterson 1999). The understanding of the agency model as retailer power RPM is meaningful as it helps to distinguish the agency model from being perceived as a form of vertical integration that ignores the changing power relation between manufacturers and retailers.…”