IDEAS home Printed from https://ideas.repec.org/a/inm/ormksc/v41y2022i2p315-335.html
   My bibliography  Save this article

Determinants of Channel Profitability: Retailers’ Control over Product Selections as Contracting Leverage

Author

Listed:
  • Sylvia Hristakeva

    (Anderson School of Management, University of California, Los Angeles, California 90095)

Abstract

Retailers control what products are offered on shelves, which may allow them to capture preferential contracts from their suppliers. I analyze the determinants of retail profitability through the lens of replacement threats, in which a buyer may obtain favorable pricing by threatening to source an input from a competitor. A theoretical analysis shows that retailers are less likely to benefit from replacement threats if they are better positioned to use other negotiation levers. An empirical analysis of the U.S. yogurt market confirms that larger buyers and regional retailers, with many stores in the market, benefit relatively less from replacement threats.

Suggested Citation

  • Sylvia Hristakeva, 2022. "Determinants of Channel Profitability: Retailers’ Control over Product Selections as Contracting Leverage," Marketing Science, INFORMS, vol. 41(2), pages 315-335, March.
    • Handle: RePEc:inm:ormksc:v:41:y:2022:i:2:p:315-335
    DOI: 10.1287/mksc.2021.1308
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mksc.2021.1308
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mksc.2021.1308?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management.
    2. Kate Ho & Robin S. Lee, 2019. "Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets," American Economic Review, American Economic Association, vol. 109(2), pages 473-522, February.
    3. Sergio Meza & K. Sudhir, 2010. "Do private labels increase retailer bargaining power?," Quantitative Marketing and Economics (QME), Springer, vol. 8(3), pages 333-363, September.
    4. Patrick Rey & Thibaud Vergé, 2010. "Resale Price Maintenance And Interlocking Relationships," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 928-961, December.
    5. Lesley Chiou & Catherine Tucker, 2017. "Content aggregation by platforms: The case of the news media," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 782-805, December.
    6. Christopher T. Conlon & Julie Holland Mortimer, 2021. "Efficiency and Foreclosure Effects of Vertical Rebates: Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 129(12), pages 3357-3404.
    7. Fiona Scott Morton & Florian Zettelmeyer, 2004. "The Strategic Positioning of Store Brands in Retailer--Manufacturer Negotiations," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 24(2), pages 161-194, March.
    8. Katz, Michael L, 1987. "The Welfare Effects of Third-Degree Price Discrimination in," American Economic Review, American Economic Association, vol. 77(1), pages 154-167, March.
    9. Brett Hollenbeck & Renato Zaterka Giroldo, 2022. "Winning Big: Scale and Success in Retail Entrepreneurship," Marketing Science, INFORMS, vol. 41(2), pages 271-293, March.
    10. Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164, March.
    11. Leslie M. Marx & Greg Shaffer, 2010. "Slotting Allowances and Scarce Shelf Space," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 575-603, September.
    12. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 625-652.
    13. K. Sudhir, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Marketing Science, INFORMS, vol. 20(3), pages 244-264, October.
    14. Soheil Ghili, 2022. "Network Formation and Bargaining in Vertical Markets: The Case of Narrow Networks in Health Insurance," Marketing Science, INFORMS, vol. 41(3), pages 501-527, May.
    15. Sofia Berto Villas‐Boas, 2009. "An empirical investigation of the welfare effects of banning wholesale price discrimination," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 20-46, March.
    16. Ken Binmore & Avner Shared & John Sutton, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 753-770.
    17. DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, vol. 80(5), pages 1246-1253, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chambolle, Claire & Christin, Clémence & Molina, Hugo, 2023. "Buyer power and exclusion: A progress report," International Journal of Industrial Organization, Elsevier, vol. 90(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yonezawa, Koichi & Gomez, Miguel I. & Richards, Timothy J., 2018. "The Robinson-Patman Act and Vertical Relationships in Food Retailing," 2018 Annual Meeting, August 5-7, Washington, D.C. 274204, Agricultural and Applied Economics Association.
    2. Robert Clark & Ignatius Horstmann & Jean-François Houde, 2021. "Hub and Spoke Cartels: Theory and Evidence from the Grocery Industry," NBER Working Papers 29253, National Bureau of Economic Research, Inc.
    3. Li, Jia & Moul, Charles C., 2015. "Who should handle retail? Vertical contracts, customer service, and social welfare in a Chinese mobile phone market," International Journal of Industrial Organization, Elsevier, vol. 39(C), pages 29-43.
    4. Irz, Xavier & Mazzocchi, Mario & Réquillart, Vincent & Soler, Louis-Georges, 2015. "Research in Food Economics: past trends and new challenges," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 96(01), pages 187-237, March.
    5. Sofia Berto Villas‐Boas, 2009. "An empirical investigation of the welfare effects of banning wholesale price discrimination," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 20-46, March.
    6. Carlos Noton & Andrés Elberg, 2013. "Revealing Bargaining Power through Actual Wholesale Prices," Documentos de Trabajo 304, Centro de Economía Aplicada, Universidad de Chile.
    7. Céline Bonnet & Zohra Bouamra-Mechemache, 2016. "Organic Label, Bargaining Power, and Profit-sharing in the French Fluid Milk Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(1), pages 113-133.
    8. Michaela Draganska & Daniel Klapper & Sofia B. Villas-Boas, 2010. "A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel," Marketing Science, INFORMS, vol. 29(1), pages 57-74, 01-02.
    9. Bonnet, Céline & Réquillart, Vincent, 2013. "Tax incidence with strategic firms in the soft drink market," Journal of Public Economics, Elsevier, vol. 106(C), pages 77-88.
    10. Bonnet, Céline & Réquillart, Vincent, 2011. "Strategic Pricing and Health Price Policies," IDEI Working Papers 671, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2012.
    11. Sun, Shaoyan & An, Henry & Marcoul, Philippe Andre, 2018. "Retailers' private labels strategy under the weather effect," 2018 Annual Meeting, August 5-7, Washington, D.C. 273820, Agricultural and Applied Economics Association.
    12. Vincent R. Nijs & Kanishka Misra & Karsten Hansen, 2014. "Outsourcing Retail Pricing to a Category Captain: The Role of Information Firewalls," Marketing Science, INFORMS, vol. 33(1), pages 66-81, January.
    13. Donna, Javier D. & Pereira, Pedro & Trindade, Andre & Yoshida, Renan C., 2020. "Direct-to-Consumer Sales by Manufacturers and Bargaining," MPRA Paper 105773, University Library of Munich, Germany.
    14. Gianpaolo Rossini & Cecilia Vergari, 2014. "The Discrete Charm of Uniform Linear Pricing of an Input Production Joint Venture," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 8(2), pages 68-83, October.
    15. Celine Bonnet & Pierre Dubois & Sofia B. Villas Boas & Daniel Klapper, 2013. "Empirical Evidence on the Role of Nonlinear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 500-515, May.
    16. Allain, Marie-Laure & Avignon, Rémi & Chambolle, Claire, 2020. "Purchasing alliances and product variety," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    17. Koichi Yonezawa & Miguel I Gómez & Timothy J Richards, 2020. "The Robinson–Patman Act and Vertical Relationships," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(1), pages 329-352, January.
    18. Fabian Herweg & Daniel Müller, 2014. "Price Discrimination in Input Markets: Quantity Discounts and Private Information," Economic Journal, Royal Economic Society, vol. 124(577), pages 776-804, June.
    19. Chambolle, Claire & Christin, Clémence & Molina, Hugo, 2023. "Buyer power and exclusion: A progress report," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    20. Hovhannisyan, Vardges & Stiegert, Kyle W., 2011. "Vertical Channel Analysis of the U.S. Milk Market," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103631, Agricultural and Applied Economics Association.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:41:y:2022:i:2:p:315-335. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.