Inference and Impact of Category Captaincy

This paper studies category captaincy , a vertical relationship where retailers delegate shelf placement and pricing decisions of an entire product category to one of the leading manufacturers within that category. These contracts involve preferential treatment given to certain brands within the retailer. However, they are confidential, and empirical analysis has been limited. To study the prevalence and welfare impact of these contracts, I develop a novel approach to infer the presence of captaincy contracts based on preferential treatment in shelf placement and pricing. I first classify retailers into different captaincy types based on a brand × retailer specific quality of shelf placement inferred from a demand model. I then conduct pricing tests and find that captains, in line with theoretical predictions and industry anecdotes, eliminate double markups from their own products but not from competitor products. Comparative statics show that captaincy relationships increase the market share of the captain, but they can also increase consumer welfare by about 5% due to the elimination of double markups on the captain’s products.