Retail Mergers: Buyer Power and Product Variety

28 Pages Posted: 10 Mar 2004

See all articles by Roman Inderst

Roman Inderst

Goethe University Frankfurt

Greg Shaffer

University of Rochester - Simon Business School

Date Written: February 2004

Abstract

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.

Keywords: Buyer power, retailing, horizontal mergers

JEL Classification: L00

Suggested Citation

Inderst, Roman and Shaffer, Greg, Retail Mergers: Buyer Power and Product Variety (February 2004). Available at SSRN: https://ssrn.com/abstract=511004

Roman Inderst (Contact Author)

Goethe University Frankfurt ( email )

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HOME PAGE: http://www.wiwi.uni-frankfurt.de/en/departments/finance/lehrstuhl/prof-dr-roman-inderst/team

Greg Shaffer

University of Rochester - Simon Business School ( email )

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