Retail Mergers, Buyer Power and Product Variety

This article analyses the impact of retail mergers on product variety. We show that, following a merger, a retailer may want to enhance its buyer power by committing to a 'single-sourcing' purchasing strategy. Anticipating further concentration in the retail industry, suppliers will strate...

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Bibliographic Details
Published in:The Economic journal (London) 2007, Vol.117 (516), p.45-67
Main Authors: Inderst, Roman, Shaffer, Greg
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Analysis
Bargaining power
Consumer goods
Consumer preferences
Contract negotiations
Contracts
Economic competition
Product variety
Purchasing power
Retail industries
Retail outlets
Retail stores
Retailing
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Summary:This article analyses the impact of retail mergers on product variety. We show that, following a merger, a retailer may want to enhance its buyer power by committing to a 'single-sourcing' purchasing strategy. Anticipating further concentration in the retail industry, suppliers will strategically choose to produce less differentiated products, which further reduces product variety. If negotiations are efficient, the overall loss in product variety may reduce consumer surplus and total welfare. With linear tariffs, however, there may be a countervailing effect as the more powerful retailer passes on lower prices to final consumers.
ISSN:0013-0133
1468-0297
DOI:10.1111/j.1468-0297.2007.02001.x