Consumer Shopping Costs as a Cause of Slotting Fees: A Rent-Shifting Mechanism

Analyzing a sequential bargaining framework with one retailer and two suppliers of substitutable goods, we show that slotting fees may emerge as a result of a rent-shifting mechanism when consumer shopping costs are taken into account. If consumers economize on their shopping costs by bundling their purchases, their buying decision depends rather on the price for the whole shopping basket than on individual product prices. This induces complementarities between the goods offered at a retail outlet. If the complementarity effect resulting from shopping costs dominates the original substitution effect, the wholesale price negotiated with the first supplier is upward distorted in order to shift rent from the second supplier. As long as the first supplier has only little bargaining power, she compensates the retailer for the upward distorted wholesale price by paying a slotting fee. We also show that banning slotting fees causes per- unit price to fall and welfare to increase.Shopping costs, rent-shifting, slotting fees

Merger Efficiency and Welfare Implications of Buyer Power

This paper analyzes the welfare implications of buyer mergers, which are mergers between downstream firms from different markets. We focus on the interaction between the merger's effects on downstream efficiency and on buyer power in a setup where one manufacturer with a non-linear cost function sells to two locally competitive retail markets. We show that size discounts for the merged entity has no impact on consumer prices or on smaller retailers, unless the merger affects the downstream efficiency of the merging parties. When the upstream cost function is convex, we find that there are "waterbed effects", that is, each small retailer pays a higher average tariff if a buyer merger improves downstream efficiency. We obtain the opposite results, "anti-waterbed effects", if the merger is inefficient. When the cost function is concave, there are only anti-waterbed effects. In each retail market, the merger decreases the final price if and only if it improves the efficiency of the merging parties, regardless of its impact on the average tariff of small retailers.Buyer mergers, non-linear supply contracts, merger efficiencies, size discounts, waterbed effects

Buyer power from joint listing decision

We show that collective bargaining can enhance retailers’ buying power vis-àvis their suppliers. We consider a model of vertically related markets, in which an upstream leader faces a competitive fringe of less efficient suppliers and negotiates secretly with several firms that compete in a downstream market. We allow downstream firms to join forces in negotiating with suppliers, by creating a buyer group which selects suppliers on behalf of its members: each group member can then veto the upstream leader’s offer, in which case all group members turn to the fringe suppliers. Transforming individual listing decisions into a joint listing decision makes delisting less harmful for a group member; this, in turn enhances the group members’ bargaining position at the expense of the upstream leader. We also show that this additional buyer power can have an ambiguous impact on the upstream leader’s incentives to invest

Buyer power from joint listing decision

We show that collective bargaining can enhance retailers’ buying power vis-àvis their suppliers. We consider a model of vertically related markets, in which an upstream leader faces a competitive fringe of less efficient suppliers and negotiates secretly with several firms that compete in a downstream market. We allow downstream firms to join forces in negotiating with suppliers, by creating a buyer group which selects suppliers on behalf of its members: each group member can then veto the upstream leader’s offer, in which case all group members turn to the fringe suppliers. Transforming individual listing decisions into a joint listing decision makes delisting less harmful for a group member; this, in turn enhances the group members’ bargaining position at the expense of the upstream leader. We also show that this additional buyer power can have an ambiguous impact on the upstream leader’s incentives to invest

Upstream market power and product line differentiation in retailing

International audienceThe authors analyze a model of vertical differentiation in which retailers compete in product lines and may purchase a high quality good from a monopolist. The low quality good is produced by a competitive fringe. Depending on quality and cost differentials, the product lines chosen by retailers in equilibrium are either identical, completely different or partially overlapping. In the absence of upstream market power, the unique equilibrium is for retailers to offer identical product lines. They provide a detailed analysis of the link between upstream market power and product line differentiation.Cet article s'intéresse à la formation des prix et des marges en fonction des gammes de produits offertes par les distributeurs. Les auteurs considèrent un modèle de différenciation verticale avec un bien de qualité haute produit par un fournisseur en monopole et un bien de qualité basse fourni par une frange concurrentielle. Les gammes de produits offertes par les distributeurs sont endogènes. En fonction des structures de coûts et du différentiel de qualité, les gammes de produits choisies par les distributeurs peuvent être identiques, différentes ou partiellement différentes. En l'absence de pouvoir de marché en amont, les gammes offertes sont toujours identiques. Les auteurs fournissent une analyse détaillée du lien entre gammes de produits offertes et pouvoir de marché amont

On the countervailing power of large retailers when shopping costs matter

We consider a set-up with vertical contracting between a supplier and a retail industry where a large retailer competes with smaller retailers that carry a narrower range of products. Consumers are heterogeneous in their shopping costs; they will either be multistop shoppers or one-stop shoppers. The countervailing power of the large retailer is modeled as a threat of demand-side substitution. We show that retail prices are higher, and industry surplus and social welfare fall, when the large retailer possesses countervailing power. Increasing marginal wholesale prices discourages multistop shopping behavior of consumers, making demand substitution less attractive for the large retailer

Negative consumer value and loss leading

Large retailers competing with smaller stores that carry a narrower range can exercise market power by pricing below cost for some of their products. Below-cost pricing arises as an exploitative device rather than a predatory device (e.g., Chen and Rey, 2012). Unlike standard textbook models, we show that positive consumer value is not required in these frameworks. Large retailers can sell products offering consumers a negative value. We use this insight to revisit some classic issues in vertical relations

L’analyse économique des marques de distributeurs

Avec les conflits successifs qui opposent producteurs et distributeurs, la grande distribution se trouve régulièrement placée au cœur des débats publics et accusée par les producteurs de facturer abusivement ses services. Deux évolutions importantes du secteur sont à retenir pour tenter d'analyser ces débats. Sa croissance rapide s'est accompagnée d'une concentration accrue du secteur. Avec plus de 60% de l'ensemble du marché des produits alimentaires, ses principaux acteurs ne sont actuellement plus que cinq, après regroupements successifs (rachats et formation de centrales d'achat), à représenter plus de 90% du marché des produits alimentaires en grande surface 1 : Carrefour-Promodès, Leclerc-Système U (centrale d'achat Lucie), Intermarché, Auchan, Casino-Cora-Monoprix (centrale d'achat Opéra). Un autre changement du secteur est le développement des marques de distributeurs. Ce document présente un panorama des marques de distributeurs et les différents facteurs qui permettent d'expliquer leur développement.

Supplier Fixed costs and Retail Market Monopolization

Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices increase in upstream firms'fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes