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Product Variety and Retail Structure

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  • Marie-Laure Allain

    (Crest)

  • Patrick Waelbroeck

    (Crest)

Abstract

We examine the impact of horizontal and vertical market structure on product variety. Weconsider a market for horizontally differentiated products where the cost of launching a newproduct is fixed and spread between the manufacturing and the retail industries. We show thata vertically integrated firm offers a wider variety of products than a chain of monopolies. Ifthe cost of launching a new product is equally shared among the vertical structure or mostlysupported by upstream firms, retail competition partially restores the incentives to innovate.Yet when this cost is mostly supported by the retail sector, downstream competition may leadto even more innovation than vertical integration. In both cases, retail concentration reducesproduct variety.

Suggested Citation

  • Marie-Laure Allain & Patrick Waelbroeck, 2006. "Product Variety and Retail Structure," Working Papers 2006-21, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2006-21
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    References listed on IDEAS

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    9. Brocas, Isabelle, 2003. "Vertical integration and incentives to innovate," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 457-488, April.
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    Cited by:

    1. Dipankar Das, 2019. "Multilayer of Suppliers Fixed Costs and Spatial Competition in the Upstream Market as a Source of Retailers Buying Power," Studies in Microeconomics, , vol. 7(2), pages 210-226, December.

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