Handbook on the Economics of Retailing and Distribution
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Handbook on the Economics of Retailing and Distribution

Edited by Emek Basker

This Handbook explores and critically examines current research in economics and marketing science on key economic issues in retailing and distribution. Providing a rich perspective for the discussion of public policy, contributions from several disciplines and continents range from the history of chains and the impact of multinational retailers on international trade patterns; to the US merger policy in the retail context, the rise of the Internet and consumer-to-consumer sales. This state-of-the-art Handbook is an essential reference for students and academics of economics and marketing science and offers outsiders valuable perspectives on operations research, data analytics, geography, and sociology.
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Chapter 5: The economics of retailer–supplier pricing relationships: theory and evidence

Howard Smith


This chapter surveys the literature on bilateral retailer-supplier pricing relations, with a focus on how they affect retail prices. The discussion brings together three strands of research that are usually discussed separately: the theory of pricing in vertically related oligopoly markets, the theory of price discrimination and buyer power in intermediate good markets, and the empirical analysis of retailer supplier relations. In the theoretical literature, retail prices are very sensitive to assumptions on the nature of retailer-supplier relations, including (1) whether suppliers can use vertical restraints, (2) market structure upstream and downstream, (3) whether the offers suppliers make to retailers are public or private, and (4) whether, and how, firms use nonlinear tariff structures. Theory has also found a number of factors that generate more bargaining power for retailers of greater size. The empirical literature is, as yet, relatively limited, partly because of the confidential nature of retailer–supplier pricing. It has studied the impacts of downstream market structure on retail prices, and the adverse effect on competition from the introduction of resale price maintenance. There is some evidence showing that large retailers secure lower prices from suppliers, particularly when the retailer has a choice of supplier.

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