Retail structure and product variety

Marie-Laure Allain and Patrick Waelbroeck

Working Papers from HAL

Abstract: We examine the impact of horizontal and vertical market structure on innovation and product variety. We consider a market for a homogeneous good where it is possible to innovate to launch a new substitute product. The cost of launching the new product is fixed and spread between the manufacturing and the retail industries. We show that a vertically intergrated firm offers a wider variety of products than a chain of monopolies. If the cost of launching a new product is equally shared among the vertical structure or mostly supported by upstream firms, retail competition partially restores the incentives to innovate of the vertical structure. Yet when the cost of launching a new product is mostly supported by the retail sector, downstream competition even leads to more innovation than vertical integration.

Date: 2006
Note: View the original document on HAL open archive server: https://hal.science/hal-00243032
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