Market Power in Food Retailing
Food retailers may enjoy market power by way of selling power (ability to control competitors and consumers) and/or buying power (ability to control suppliers). Selling power is reflected in the market share gains achieved by some distribution channels and groups of enterprises. The double effect of structural factors (consumer behaviour) and economies of scale and scope in terms of logistics, merchandise management and distribution led to the rapid growth of super- and hypermarkets in the past decades and contributed to the emergence of major suburban shopping centres. Market leaders were able to boost their market shares significantly, and the concentration increased, which in turn improved efficiency and accelerated the erosion of the position of neighbourhood shops. High concentration rates in retailing, combined with the structural advantages enjoyed by the retail trade over much of the manufacturing, makes for a substantial potential buying power by the retailer. The extent to which buying power has implications in terms of welfare economics depends very much on the market structures in retailing and manufacturing, but also on the extent to which competition works at the retailing trade level. Confirmation that the retailing industry has in recent years gained in buying power comes, i.a., from the fact that the main buyers have increased their sales volumes. Their rising buying power is accompanied by a shift of functions from manufacturing industry to retailing industry, larger discounts, insistence on better terms and price and terms negotiations which are largely controlled by the retailing industry. The most efficient method of fighting buying power appears to be the development of strong brands. To a large extent, increasing buying power is also due to intensified competition in the wake of EU membership and structural problems suffered by the manufacturing industry: too small enterprises, excessive production costs, weak brands as a result of the lack of innovation and marketing competence. High concentration rates among food retailers and their resultant market and buying power may be countered only by competitive policy measures (preventive merger control, accompanying supervision to prevent abuse). Structural problems, especially those suffered by small businesses, need to be eliminated within the scope of a structural and industrial policy, with the initiative to be taken by the businesses themselves.
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Volume (Year): 72 (1999)
Issue (Month): 12 (December)
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References listed on IDEAS
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- Cotterill, Ronald W, 1986. "Market Power in the Retail Food Industry: Evidence from Vermont," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 379-86, August.
- Bresnahan, Timothy F & Reiss, Peter C, 1991.
"Entry and Competition in Concentrated Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 99(5), pages 977-1009, October.
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