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The balance of power between producers and retailers : a differentiation model

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  • Marie-Laure ALLAIN

    (CNRS Ecole Polytechnique et CREST)

Abstract

This paper argues that the balance of power between producers and retailers depends on the relative degrees of differentiation at the two levels of the vertical structure. We propose an extension of Hotelling's model in which two producers, competing in prices with horizontally differentiated products, face two horizontally differentiated retailers also competing in prices. We study the setting of producers' and retailers' margins. We show that when retailers are more differentiated than producers, they dominate the relationship and their margin is higher than producers'.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2002034.

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Length: 21
Date of creation: 01 Sep 2002
Date of revision:
Handle: RePEc:ctl:louvre:2002034

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Keywords: Vertical relationships; differentiation;

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References

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  1. Mills, David E, 1995. "Why Retailers Sell Private Labels," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 4(3), pages 509-28, Fall.
  2. Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
  3. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
  4. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
  5. Greg Shaffer, 1991. "Slotting Allowances and Resale Price Maintenance: A Comparison of Facilitating Practices," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 120-135, Spring.
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Cited by:
  1. Teichmann, Isabel & von Schlippenbach, Vanessa, 2011. "The Strategic Use of Private Quality Standards in Food Supply Chains," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland, European Association of Agricultural Economists 116079, European Association of Agricultural Economists.
  2. Fabian Bergès & Claire Chambolle, 2009. "Threat of Exit as a Source of Bargaining Power," Recherches économiques de Louvain, De Boeck Université, De Boeck Université, vol. 75(3), pages 353-368.
  3. Vickner, Steven S. & Davies, Stephen P. & Fulton, Joan R. & Vantreese, Valerie L., 2000. "Estimating Market Power And Pricing Conduct For Private-Label And National Brands In A Product-Differentiated Oligopoly: The Case Of A Frozen Vegetable Market," Journal of Food Distribution Research, Food Distribution Research Society, Food Distribution Research Society, vol. 31(02), July.
  4. Kourandi, Frago & Vettas, Nikolaos, 2010. "Endogenous Spatial Differentiation with Vertical Contracting," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7948, C.E.P.R. Discussion Papers.

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