The Effects of Market Concentration on Suppliers

When firms get large, they acquire more bargaining power, and can exert significant pressure on their suppliers with respect to pricing, delivery time and packaging. Suppliers that don’t comply might be replaced or lose their space on a retailer’s shelves. The shift toward “private label” goods also has affected retailers’ bargaining power. Large retailers have the scale to develop and distribute their own products, which may give them leverage over national brands. These trends might help to explain how increased market concentration could coexist with quite muted inflation, particularly for consumer goods. This perspective is equally applicable to the biggest supplier—labor. Labor’s share of income has been decreasing over time, which could be due in part to increased bargaining power by evermore concentrated employers within domestic markets. Net, I believe more-concentrated employers are leveraging their market power not to raise prices to consumers but to extract value from suppliers and from employees.