Buyer Power in U.K. Food Retailing: A 'First-Pass' Test

Lloyd Tim, McCorriston Steve, Morgan Wyn, Rayner Anthony and Weldegebriel Habtu
Additional contact information
Lloyd Tim: University of Nottingham
McCorriston Steve: University of Exeter
Morgan Wyn: University of Nottingham
Rayner Anthony: University of Nottingham
Weldegebriel Habtu: University of Warwick

Journal of Agricultural & Food Industrial Organization, 2009, vol. 7, issue 1, 40

Abstract: The potential existence of buyer power in U.K. food retailing has attracted the scrutiny of the U.K.'s anti-trust authorities, culminating in the second of two comprehensive regulatory inquiries in recent years. Such inquiries are authoritative but correspondingly time-consuming and costly. Moreover, detection of buyer power has been dogged by the paucity of reliable evidence of its existence. In this paper, we present a simple theoretical model of oligopsony which delivers quasi-reduced form retailer-producer pricing equations with which the null of perfect competition can be tested using readily available market data. Using a cointegrated vector autoregression, we find empirical results that show the null of perfect competition can be rejected in seven of the nine food products investigated. Though not conclusive on the existence of buyer power, the proposed test offers a means via which the behaviour of the retail-producer price spread is consistent with it. At the very least, it can corroborate the concerns of the anti-trust authorities as to whether buyer power is potentially one source of concern.

Keywords: buyer power; cointegrated VARs; U.K. food industry (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (15)

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DOI: 10.2202/1542-0485.1253

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