Wednesday, April 25, 2007
Posted by D. Daniel Sokol
Next week is the final week of classes at the University of Wisconsin. My final class will focus on comparative buyer power issues. A new working paper titled Retail Mergers, Buyer Power and Product Variety by Roman Inderst of the London School of Economics & Political Science and Greg Shaffer of the University of Rochester - Simon School of Business addresses buyer power merger issues.
ABSTRACT: 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.