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The countervailing power hypothesis when dominant retailers function as sales promoters

Listed author(s):
  • Noriaki Matsushima
  • Shohei Yoshida

We consider a downstream oligopoly model with one dominant and several fringe retailers, who purchase a manufacturing product from a monopoly supplier. We then examine how the supplier's outside option influences the relation between the dominant retailer's bargaining power and the equilibrium retail price. If the market demand shrinks due to a breakdown of bargaining between the supplier and the dominant retailer, who works as a sales promoter for the product, there is a negative relation between the bargaining power and the retail price. Furthermore, retailers' efficiency improvements increase the retail price if the dominant retailer's bargaining power is strong.

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File URL: http://www.iser.osaka-u.ac.jp/library/dp/2016/DP0981.pdf
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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0981.

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Date of creation: Oct 2016
Handle: RePEc:dpr:wpaper:0981
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  1. Alberto Iozzi & Tommaso Valletti, 2014. "Vertical Bargaining and Countervailing Power," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 106-135, August.
  2. Howard P. Marvel & Stephen McCafferty, 1984. "Resale Price Maintenance and Quality Certification," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 346-359, Autumn.
  3. Zhiqi Chen & Hong Ding & Zhiyang Liu, 2015. "Downstream Competition and the Effects of Buyer Power," Carleton Economic Papers 15-06, Carleton University, Department of Economics.
  4. Inderst, Roman & Shaffer, Greg, 2004. "Retail Mergers: Buyer Power and Product Variety," CEPR Discussion Papers 4236, C.E.P.R. Discussion Papers.
  5. Gaudin, Germain, 2015. "Vertical bargaining and retail competition: What drives countervailing power?," DICE Discussion Papers 195, Düsseldorf Institute for Competition Economics (DICE), University of Düsseldorf.
  6. von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
  7. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-430, March.
  8. Wujin Chu & Woosik Chu, 1994. "Signaling Quality by Selling Through a Reputable Retailer: An Example of Renting the Reputation of Another Agent," Marketing Science, INFORMS, vol. 13(2), pages 177-189.
  9. Gaudin, Germain, 2016. "Pass-through, vertical contracts, and bargains," Economics Letters, Elsevier, vol. 139(C), pages 1-4.
  10. Can Erutku, 2005. "Buying power and strategic interactions," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1160-1172, November.
  11. Chen, Zhiqi, 2003. " Dominant Retailers and the Countervailing-Power Hypothesis," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 612-625, Winter.
  12. Clerides, Sofronis & Nearchou, Paris & Pashardes, Panos, 2008. "Intermediaries as quality assessors: Tour operators in the travel industry," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 372-392, January.
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