Competing for shelf space

This paper studies competition for shelf space in a multi-supplier retail point. We consider a retailer that seeks to allocate her shelf space to maximize her profit. Because products associated with larger profit margin are granted more shelf space, suppliers can offer the retailer financial incentives to obtain larger space allocations. We analyze the competitive dynamics arising from the scarcity of space, and show existence and uniqueness of equilibrium. We then demonstrate that the inefficiencies from decentralizing decision-making are limited to 6% with wholesale-price contracts, and that full coordination can be achieved with pay-to-stay fee contracts. We finally investigate how competition is distorted under the practice of category management.Game theory; Supply chain competition; Price of Anarchy; Pricing; Supply contracts;

NON-CREDIBLE INFORMATION FLOWS BETWEEN FOOD MANUFACTURERS AND RETAILERS

Asymmetric information between food manufacturers and retailers constrains the efforts of analysts studying the retail food chain. The problem may be especially pronounced during new product introductions. Manufacturers may have demand information about new products but have incentives to not credibly relay that information. Retailers often lack reliable demand information about new products. Understanding the roots of non-credible information flows within the manufacturer/retailer relationship is important to behavioral modeling in the food chain. This paper provides an analytic derivation to explain sufficient conditions for non-credible information flows leading to asymmetric information and adverse selection problems. Results provide insight about formation of information sharing mechanisms in the retail grocery channel.Agribusiness,

The Free Rider Problem, Imperfect Pricing, and the Economics of Retailing Services

In GTE Sylvania, the Supreme Court acknowledged what a group of law and economics scholars had been arguing for the previous two decades: vertical restrictions that limit intrabrand competition can have a desirable effect on interbrand competition. The Court approvingly accepted the argument that the free rider problem might justify a manufacturer\u27s use of vertical restrictions. The argument, in its simplest form, is that if a retailer provides services such as advice and demonstrations to consumers, a consumer could make use of the service and then buy the product from a no- frills retailer. If the manufacturer cannot control the free riding proclivities of other retailers, no retailer would find it in his interest to provide the consumer services. Vertical restrictions shield a retailer from free riding and make provision of the services profitable

The Strategic Positioning of Store Brands in Retailer - Manufacturer Bargaining

We argue in this paper that retailers can strategically position store brands in product space to strengthen their bargaining position when negotiating supply terms with manufacturers of national brands. Using a bargaining framework we model a retailer's decision whether to carry an additional national brand or a store brand, and if the retailer chooses to introduce the latter, where in product space to locate the store brand. Store brands differ from other brands in being both unadvertised and located at a position in product space that is determined by the retailer instead of by a manufacturer. To capture the negotiation effect of store brands empirically, our paper analyses a retailer's choice of whether or not to carry a store brand in a given category. We control for other motivations for carrying a store brand that have been used in the literature. We test our model on a cross-section of categories using supermarket data from multiple retailers. The first contribution of this paper is to show theoretically that the strategic positioning of a store brand in a category changes the bargaining over supply terms between a retailer and national brand manufacturers in that category. The empirical evidence is consistent with the theory. We find that retailers are more likely to carry a store brand in a category if the share of the leading national brand is higher, but that the leading national brand share does not affect the market share of the store brand. This indicates that there may be a bargaining motive for the introduction of the store brand. We propose that this is because the retailer can position the store brand to mimic the leading national brand and present data that shows that store brands frequently imitate national brand packaging on multiple dimensions.

Private label introduction: Does it benefit the supply chain?

Private labels, also called store brands or distributor brands, have changed the retail industry during the last three decades. Consumer data shows strong growth of private label market share, and in countries like Germany or Spain, the penetration of private labels is above 30% of total retail sales. This paper analyzes the channel dynamics in a category where a private label is introduced. We focus on the impact of private labels on retail and wholesale equilibrium prices, as well as on the profits of each firm of the supply chain. While private label introduction helps the retailer reduce manufacturer brand's prices, we find that it does not always improve the total profits of the supply chain. Generally, the supply chain benefits from this introduction only when cross-elasticities are small, i.e., competitive interactions are weak. With our model, we formulate the general conditions under which retailers should consider introducing private labels.Private label; non-cooperative game theory; supply chain efficiency;

The determinants of retailer power within retailer manufacturer relationships evidence from the Irish food manufacturing industry

This research investigates the determinants of retailer power within retailer-manufacturer relationships by specifying and testing three models of retailer power. It is based on a sample of 55 Irish food manufacturers and their experiences of relationships with Irish and British retailers. The study adopts the view that the existing body of research into relationships with retailers is fragmented, and that a more complete understanding of these power relations may be obtained by simultaneously focusing on three sets of factors. The factors are industry specific, firm and product specific, and relationship specific. Much of the existing empirical work investigating power relations implicitly assumes power to be unidimensional through the measures employed. Consequently, the current study investigates retailer power, measured as a unidimensional construct. However, the work proceeds to explicitly acknowledge that power is multidimensional by examining retailers' power over manufacturers' product related and margin related activities. In examining these two dimensions of power, findings ofa more strategic nature are obtained. The analysis draws on the importance French and Raven (1959) attributed to observability as a determinant of power. While neglected throughout the power literature, observability, by introducing monitoring activities, provides a bridge with the transaction cost literature. In this way, specific investments, and the role of retailers' branding strategies, are incorporated into our study of power. The relationship between retailers' monitoring activities and power is specified. Proceeding from monitoring activities, the analysis sheds light on the determinants of inter-firm integration between retailers and food manufacturers. The role of specific investments, symmetric dependency, brand portfolio and retail influence on price are highlighted. The analysis of retailers' product related power supports the role of retail concentration, product shelf-life, manufacturer specific investments and retailers' product monitoring activities. Examining retail margin related power points to the importance of retail concentration, own brand penetration, the importance of economies of scale in manufacturing, product shelf life and manufacturer specific investments. Finally, retail power, measured as a unidimensional construct, is found to be related to own brand market penetration, the importance of economies of scale in manufacturing, manufacturer specific investments and retailers' monitoring activities

Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data

We examine the retail prices and wholesale prices of a large supermarket chain in Chicago over seven and one-half years. We show that prices tend to fall during the seasonal demand peak for a product and that changes in retail margins account for most of those price changes; thus we add to the growing body of evidence that markups are counter-cyclical. The pattern of margin changes that we observe is consistent with loss leader' models such as the Lal and Matutes (1994) model of retailer pricing and advertising competition. Other models of imperfect competition are less consistent with retailer behavior. Manufacturer behavior plays a more limited role in the counter-cyclicality of prices.