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Welfare Implications of Supplier Encroachment With Consumer Shopping Costs

Author

Listed:
  • Caprice, Stéphane
  • Shekhar, Shiva

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.

Suggested Citation

  • Caprice, Stéphane & Shekhar, Shiva, 2025. "Welfare Implications of Supplier Encroachment With Consumer Shopping Costs," TSE Working Papers 25-1629, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:130442
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    References listed on IDEAS

    as
    1. Bjørn Olav Johansen & Tore Nilssen, 2016. "The Economics of Retailing Formats: Competition Versus Bargaining," Journal of Industrial Economics, Wiley Blackwell, vol. 64(1), pages 109-134, March.
    2. Cong Pan, 2018. "Supplier Encroachment and Consumer Welfare: Upstream Firm’s Opportunism and Multichannel Distribution," ISER Discussion Paper 1020, Institute of Social and Economic Research, The University of Osaka.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Encroachment; Vertical Contracting; Downstream Competition and Consumer Shopping Costs.;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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