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The quasi-judicial role of large retailers: An efficiency hypothesis of their relation with suppliers

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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.

Suggested Citation

  • Benito Arruñada, 2000. "The quasi-judicial role of large retailers: An efficiency hypothesis of their relation with suppliers," Economics Working Papers 445, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:445
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    References listed on IDEAS

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    1. Kandel, Eugene, 1996. "The Right to Return," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 329-356, April.
    2. Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Western Economic Association International, vol. 34(3), pages 444-463, July.
    3. 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 615-641, August.
    4. Arrunada, Benito & Garicano, Luis & Vazquez, Luis, 2001. "Contractual Allocation of Decision Rights and Incentives: The Case of Automobile Distribution," Journal of Law, Economics, and Organization, Oxford University Press, vol. 17(1), pages 257-284, April.
    5. Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 223-233, April.
    6. Masten, Scott E & Snyder, Edward A, 1993. "United States versus United Shoe Machinery Corporation: On the Merits," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 33-70, April.
    7. repec:mes:jeciss:v:30:y:1996:i:4:p:1212-1216 is not listed on IDEAS
    8. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
    9. Klein, Benjamin & Murphy, Kevin M, 1997. "Vertical Integration as a Self-Enforcing Contractual Arrangement," American Economic Review, American Economic Association, vol. 87(2), pages 415-420, May.
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    Cited by:

    1. Benito Arruñada, 2007. "Market and institutional determinants in the regulation of conveyancers," European Journal of Law and Economics, Springer, vol. 23(2), pages 93-116, April.
    2. Benito Arruñada, 2011. "Mandatory accounting disclosure by small private companies," European Journal of Law and Economics, Springer, vol. 32(3), pages 377-413, December.
    3. Fabrizio Cafaggi & Paola Iamiceli, 2010. "Inter-firm Networks in the European Wine Industry," EUI-LAW Working Papers 19, European University Institute (EUI), Department of Law.
    4. 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.
    5. 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.

    More about this item

    Keywords

    Retailing; distribution; contracts; transaction costs; self-enforcement;

    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; Personnel Economics - - Marketing and Advertising - - - Marketing

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