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Are Supermarkets Squeezing Small Suppliers? Evidence from Negotiated Wholesale Prices

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  • Carlos Noton
  • Andrés Elberg

Abstract

Conventional wisdom is that big†box retailers squeeze the profits of small suppliers. Underlying this belief is the assumption that relative market size is the primary source of bargaining leverage. Using actual wholesale prices, we study profit†sharing between large retailers and suppliers of different size. We find that the median supplier earns 42% of the channel surplus, and that some very small suppliers attain a share of the channel surplus close to that of the largest supplier (about 68%). Using a Nash bargaining model, we find that small suppliers can gain bargaining leverage by maintaining a base of loyal customers.

Suggested Citation

  • Carlos Noton & Andrés Elberg, 2018. "Are Supermarkets Squeezing Small Suppliers? Evidence from Negotiated Wholesale Prices," Economic Journal, Royal Economic Society, vol. 128(610), pages 1304-1330, May.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:610:p:1304-1330
    DOI: 10.1111/ecoj.12423
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    Cited by:

    1. Javier Donna & Andre Trindade & Pedro Pereira & Tiago Pires, 2018. "Measuring the Welfare of Intermediation in Vertical Markets," 2018 Meeting Papers 984, Society for Economic Dynamics.
    2. Diego Cussen & Juan-Pablo Montero, 2022. "Using list prices to collude or to compete?," Documentos de Trabajo 567, Instituto de Economia. Pontificia Universidad Católica de Chile..
    3. Zhu, Yongyi & Yu, Di, 2024. "Digital transformation and firms’ bargaining power: Evidence from China," Journal of Business Research, Elsevier, vol. 183(C).
    4. Chrysovalantou Milliou & Apostolis Pavlou, 2020. "Foreign direct investment in vertically related markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 284-320, February.
    5. Daniel Garcia & Jun Honda & Maarten Janssen, 2017. "The Double Diamond Paradox," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 63-99, August.
    6. Matsumoto, Tomoki & Kamai, Tomohito & Kanazawa, Yuichiro, 2024. "Examining bargaining power in the distribution channel under possible price pass-through behaviors of retailers," Journal of Retailing and Consumer Services, Elsevier, vol. 76(C).
    7. 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.
    8. Molina, Hugo & Wang, Ao, 2024. "Vertical Bargaining under Uncertain Retailer Responsiveness : A Structural Approach," The Warwick Economics Research Paper Series (TWERPS) 1534, University of Warwick, Department of Economics.
    9. Javier D. Donna & Pedro Pereira & Tiago Pires & André Trindade, 2022. "Measuring the Welfare of Intermediaries," Management Science, INFORMS, vol. 68(11), pages 8083-8115, November.
    10. Seongtae Kim & Sangho Chae & Stephan M. Wagner & Jason W. Miller, 2022. "Buyer abusive behavior and supplier welfare: An empirical study of truck owner–operators," Journal of Supply Chain Management, Institute for Supply Management, vol. 58(4), pages 90-111, October.
    11. Daniel Garcia & Jun Honda & Maarten Janssen, 2017. "The Double Diamond Paradox," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 63-99, August.
    12. Donna, Javier D. & Pereira, Pedro & Pires, Tiago & Trindade, Andre, 2018. "Measuring the Welfare of Intermediaries in Vertical Markets," MPRA Paper 90465, University Library of Munich, Germany.
    13. Pál, László & Sándor, Zsolt, 2023. "Comparing procedures for estimating random coefficient logit demand models with a special focus on obtaining global optima," International Journal of Industrial Organization, Elsevier, vol. 88(C).
    14. repec:hal:wpaper:hal-03375907 is not listed on IDEAS
    15. Liesbeth Colen & Zohra Bouamra-Mechemache & Victoria Daskalova & Kjersti Nes, 2020. "Retail alliances in the agricultural and food supply chain," JRC Research Reports JRC120271, Joint Research Centre.
    16. Qi Feng & Chengzhang Li & Mengshi Lu & J. George Shanthikumar, 2022. "Implementing Environmental and Social Responsibility Programs in Supply Networks Through Multiunit Bilateral Negotiation," Management Science, INFORMS, vol. 68(4), pages 2579-2599, April.
    17. Selin Akca & Anita Rao, 2020. "Value of Aggregators," Marketing Science, INFORMS, vol. 39(5), pages 893-922, September.

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