Abstract
We develop a bilateral oligopoly framework with manufacturer-retailer bargaining to analyze the impact of retail mergers on market outcomes. We show that the surplus division between manufacturers and retailers depends on three bargaining forces and can be interpreted in terms of an “equilibrium of fear”. We estimate our framework in the French soft drink industry and find that retailers have greater bargaining power than manufacturers. Using counterfactual simulations, we highlight that retail mergers increase retailers’ fear of disagreement relative to that of manufacturers, which weakens their buyer power and leads to higher wholesale and retail prices.
Keywords
Bilateral oligopoly; Bargaining; Retail mergers; Soft drink industry;
JEL codes
- C78: Bargaining Theory • Matching Theory
- D43: Oligopoly and Other Forms of Market Imperfection
- L11: Production, Pricing, and Market Structure • Size Distribution of Firms
- L13: Oligopoly and Other Imperfect Markets
- L14: Transactional Relationships • Contracts and Reputation • Networks
- L41: Monopolization • Horizontal Anticompetitive Practices
- L81: Retail and Wholesale Trade • e-Commerce
Reference
Céline Bonnet, Zohra Bouamra-Mechemache, and Hugo Molina, “The Buyer Power Effect of Retail Mergers: An Empirical Model of Bargaining with Equilibrium of Fear”, The RAND Journal of Economics, 2024, forthcoming.
Published in
The RAND Journal of Economics, 2024, forthcoming