Wednesday, January 11, 2012
Posted by D. Daniel Sokol
Patrick Rey (Toulouse School of Economics) and Michael Whinston (Northwestern University) ask Does Retailer Power Lead to Exclusion?
ABSTRACT: This paper examines whether retailer bargaining power and upfront slotting allowances prevent small manufacturers (who have no bargaining power) from obtaining adequate distribution. In contrast to the findings of Marx and Shaffer (2007), who showed that all equilibria involve limited distribution (i.e., exclusion of a retailer), we show that there is always an equilibrium in which full distribution is obtained, provided that full distribution is the industry profit-maximizing outcome. The key feature leading to this differing result is that we do not restrict each retailer to offering the manufacturer a single tariff.