Working Paper: CEPR ID: DP4236
Authors: Roman Inderst; Greg Shaffer
Abstract: This Paper analyses the impact of retail mergers on product variety. We show that a merging firm may want to enhance its buyer power vis a vis suppliers by delisting products and committing to a ?single-sourcing? purchasing strategy. Anticipating this, suppliers will strategically choose to produce less differentiated products, which further reduces product variety. If negotiations are efficient the loss in product variety reduces overall industry profit and, possibly, also consumer welfare. With linear tariffs, however, there may be a countervailing effect as the more powerful retailer passes on lower input prices to final consumers.
Keywords: buyer power; horizontal mergers; retailing
JEL Codes: L00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Retailer Merger (L81) | Delisting Strategy (G34) |
| Delisting Strategy (G34) | Enhanced Buyer Power (L14) |
| Enhanced Buyer Power (L14) | Less Differentiated Products (L15) |
| Less Differentiated Products (L15) | Reduced Product Variety (L15) |
| Reduced Product Variety (L15) | Decreased Overall Industry Profit (L19) |
| Reduced Product Variety (L15) | Decreased Consumer Welfare (D11) |
| Retailer Merger (L81) | Reduced Product Variety (L15) |