Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, March 22, 2007

Outsourcing Retail Category Management

Posted by D. Daniel Sokol

Yesterday during one of my frequent trips to the supermarket, I thought of category management.  Looking for some new antitrust scholarship in this area, I found Category Captainship: Outsourcing Retail Category Management by Mumin Kurtulus, a professor in the Operations Management group at Vanderbilt’s Owen School of Management and Beril Toktay, a professor of Operations Management at the College of Management of Georgia Tech.

Abstract: Retailers in the consumer goods industry often rely on a leading manufacturer for category management, a form of manufacturer-retailer collaboration referred to as category captainship. There are reported success stories about category captainship, but also a growing debate about its potential for anti-competitive practices by category captains. Motivated by conflicting viewpoints, the goal of our research is to deepen our understanding of the consequences of such collaboration initiatives between the retailer and only one of its manufacturers. To this end, we develop a game theoretic model of two competing manufacturers selling through one retailer that captures the basic tradeoffs of using category captains for category management. We consider two scenarios that are in line with traditional retail category management and category captainship. In the first scenario, the retailer is responsible for managing the category and determines retail prices and assortment. In the second scenario, we assume that the retailer delegates part or all retail category management decisions to one of the manufacturers in return for a target category profit, and implements its recommendations. We compare these two scenarios to investigate the impact of the transition on all stakeholders in the supply chain. We conclude with design recommendations on the scope and structure of category captainship.

I would be remiss if I did not mention Josh Wright’s substantial and important recent contributions in the analysis of competition issues in supermarkets. You can download his works here

http://lawprofessors.typepad.com/antitrustprof_blog/2007/03/outsourcing_ret.html

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