Manufacturer–Retailer Relationships and the Distribution of New Products

Industry practitioners often emphasize the importance of manufacturer–retailer relationships in product distribution. In this paper, I formalize the industry’s notion of a relationship with a repeated game framework and study its impact in the heavily regulated hard cider market. I present evidence that retailers and leading manufacturers coordinate with and offer preferential treatment to each other when setting assortments and wholesale prices. Based on this evidence, I develop a repeated game–based model to estimate each pair’s coordination, which is linked to the manufacturer’s performance at the retailer in the broader beer market. The results show the relationships increase new cider availability by 17.5% and 5.1%, respectively, for Anheuser-Busch InBev and MillerCoors, the two leading brewers. The relationship’s effect is determined jointly by the degree of assortment distortion and the reduction in double marginalization. Although these relationships could improve welfare, they imply that current regulations in the alcoholic beverage industry fail to generate a level playing field for every manufacturer.