Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 03/12: THE BUYER POWER OF MULTIPRODUCT RETAILERS: COMPETITION WITH ONE-STOP SHOPPING.

Bjørn Olav Johansen ()
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Bjørn Olav Johansen: University of Bergen, Norway, Postal: Department of Economics, Fosswinckelsgt. 14, 5007 Bergen, Norway

Abstract: This paper illustrates how, in local retail markets, a multiproduct retailer may gain buyer power when some consumers are one-stop shoppers (multi-product shop-pers). We consider a model where independent suppliers negotiate terms of trade with a large multiproduct retailer and a group of smaller single product retailers, respectively. We find that an increase in the share of one-stop shoppers intensifies the degree of competition between the retailers, and hence reduces the overall industry profit –while at the same time enabling the multiproduct retailer to obtain discounts from its suppliers, in the form of lower fixed fees. We also show that the presence of a large retailer may positively affect the suppliers’incentives to invest in product quality or cost reductions.

Keywords: one-stop shopping; buyer power; dynamic effi- ciency; public policy

JEL-codes: L11; L22; L25; L41; L42

152 pages, February 1, 2012

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