Welfare Implications of Supplier Encroachment With Consumer Shopping Costs

Stéphane Caprice () and Shiva Shekhar ()
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Stéphane Caprice: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Shiva Shekhar: TiSEM - Tilburg School of Economics and Management - Tilburg University [Netherlands]

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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.

Keywords: Encroachment; Vertical Contracting (search for similar items in EconPapers)
Date: 2025-03
Note: View the original document on HAL open archive server: https://hal.science/hal-05002775v1
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