DP4236 Retail Mergers: Buyer Power and Product Variety

Author(s): Roman Inderst, Greg Shaffer
Publication Date: February 2004
Keyword(s): buyer power, horizontal mergers, retailing
JEL(s): L00
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4236

This Paper analyses the impact of retail mergers on product variety. We show that a merging firm may want to enhance its buyer power vis a vis suppliers by delisting products and committing to a ?single-sourcing? purchasing strategy. Anticipating this, suppliers will strategically choose to produce less differentiated products, which further reduces product variety. If negotiations are efficient the loss in product variety reduces overall industry profit and, possibly, also consumer welfare. With linear tariffs, however, there may be a countervailing effect as the more powerful retailer passes on lower input prices to final consumers.