Thursday, June 26, 2014

The Economics of Retailing Formats: Competition versus Bargaining

Olav Johansen, University of Bergen - Department of Economics and Tore Nilssen, University of Oslo - Department of Economics discuss The Economics of Retailing Formats: Competition versus Bargaining.

ABSTRACT: We set up a merger game between retailing stores to study the incentives of independent stores to form a big store when some consumers have preferences for one-stop shopping. Such one-stop shopping creates complementarity between products, leading in turn to lower prices after a big store is formed but may also lead to an improvement in the bargaining position vis-à-vis producers through the creation of an inside option that small stores don't have. We find that big stores will not be formed when the stores' ex-ante bargaining power vis-a-vis producers is high. Otherwise, an asymmetric situation occurs with only one big store created when one-stop shoppers are abundant.

https://lawprofessors.typepad.com/antitrustprof_blog/2014/06/the-economics-of-retailing-formats-competition-versus-bargaining.html

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