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Dominant Retailers and the Countervailing-Power Hypothesis

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  • Chen, Zhiqi

Abstract

I assess rigorously the countervailing-power hypothesis using a model that captures the main ingredients of Galbraith's (1952) arguments as well as some of the important features of the retail industry. I demonstrate that an increase in the amount of countervailing power possessed by a dominant retailer can indeed lead to a fall in retail prices for consumers. However, total surplus does not always increase with the rise of countervailing power because of the possible efficiency loss in retailing. Furthermore, the presence of fringe competition is crucial for countervailing power to benefit consumers. Copyright 2003 by the RAND Corporation.

Suggested Citation

  • Chen, Zhiqi, 2003. "Dominant Retailers and the Countervailing-Power Hypothesis," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 612-625, Winter.
    • Handle: RePEc:rje:randje:v:34:y:2003:i:4:p:612-25
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    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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