Abstract
In this paper, we study supplier encroachment in competition with multi-product retailers and its effects on retail profits under endoge-nous consumer shopping behavior. We find that supplier encroach-ment (weakly) increases both supplier and retailer profits, as the re-tailer benefits from better consumer segmentation and price discrim-ination despite (weakly) higher wholesale prices. The effect of en-croachment on consumers is more nuanced: when the competitive product’s value is high, consumers benefit. Instead, when the value of the competitive product is low, consumers buying exclusively from the multi-product retailer are worse off while consumers who mix and match across stores are better off. Overall, supplier encroachment can improve market outcomes if the value of the supplier’s product offering is sufficiently high.
Keywords
Encroachment; Vertical Contracting; Downstream Competition and Consumer Shopping Costs.;
JEL codes
- L13: Oligopoly and Other Imperfect Markets
- L22: Firm Organization and Market Structure
- L42: Vertical Restraints • Resale Price Maintenance • Quantity Discounts
- L81: Retail and Wholesale Trade • e-Commerce
Reference
Stéphane Caprice, and Shiva Shekhar, “Welfare Implications of Supplier Encroachment With Consumer Shopping Costs”, TSE Working Paper, n. 25-1629, March 2025.
See also
Published in
TSE Working Paper, n. 25-1629, March 2025