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The Quasi-Judicial Role of Large Retailers: An Efficiency Hypothesis of Their Relation with Suppliers

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Author Info
Benito Arruñada ()

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Abstract

The paper explores an efficiency hypothesis regarding the contractual process between large retailers, such as Wal-Mart and Carrefour, and their suppliers. The empirical evidence presented supports the idea that large retailers play a quasi-judicial role, acting as "courts of first instance" in their relationships with suppliers. In this role, large retailers adjust the terms of trade to on-going changes and sanction performance failures, sometimes delaying payments. A potential abuse of their position is limited by the need for re-contracting and preserving their reputations. Suppliers renew their confidence in their retailers on a yearly basis, through writing new contracts. This renovation contradicts the alternative hypothesis that suppliers are expropriated by large retailers as a consequence of specific investments.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/445.pdf
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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 445.

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Date of creation: Jan 2000
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Handle: RePEc:upf:upfgen:445

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Web page: http://www.econ.upf.edu/

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Related research
Keywords: Retailing; distribution; contracts; transaction costs; self-enforcement;

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Find related papers by JEL classification:
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Oxford University Press, vol. 34(3), pages 444-63, July.
  2. Masten, Scott E & Snyder, Edward A, 1993. "United States versus United Shoe Machinery Corporation: On the Merits," Journal of Law & Economics, University of Chicago Press, vol. 36(1), pages 33-70, April.
  3. Klein, Benjamin & Murphy, Kevin M, 1997. "Vertical Integration as a Self-Enforcing Contractual Arrangement," American Economic Review, American Economic Association, vol. 87(2), pages 415-20, May. [Downloadable!] (restricted)
  4. Benito Arruñada & Luis Garicano & Luis Vázquez, 1999. "Contractual Allocation of Decision Rights and Incentives: The Case of Automobile Distribution," Economics Working Papers 424, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  5. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August. [Downloadable!] (restricted)
  6. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November. [Downloadable!] (restricted)
  7. Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law & Economics, University of Chicago Press, vol. 21(1), pages 223-33, April.
  8. Kandel, Eugene, 1996. "The Right to Return," Journal of Law & Economics, University of Chicago Press, vol. 39(1), pages 329-56, April.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Maze, Armelle, 2002. "Learning Process and Contract Adaptation with Quality Uncertainty: Some Paradoxes in Retailer-Producer Relationships," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24957, European Association of Agricultural Economists. [Downloadable!]
  2. Benito Arruñada, 2008. "Mandatory Accounting Disclosure by Small Private Companies," Economics Working Papers 1090, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  3. Benito Arruñada, 2000. "The Role of Institutions in the Contractual Process," Economics Working Papers 521, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2003. [Downloadable!]
  4. Benito Arruñada, 2007. "Market and Institutional Determinants in the Regulation of Conveyancers," Economics Working Papers 1034, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
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