Contract type selection in Korea's large-scale retail sector

Jinkook Lee and Myoungshik Seo

KDI Journal of Economic Policy, 2025, vol. 47, issue 3, 1-29

Abstract: Using firm-level data on 7,000 suppliers transacting with 26 major South Korean retailers, this study analyzes how contract types, referring to direct purchase, special contract, consignment, and store lease types, are determined and how they affect supplier performance. Contract choice varies systematically by retail format and product category, shaped by transaction costs and asset specificity. Regression results show that direct purchases are positively associated with advanced retailer procurement systems, high supplier trust in the retailer, and stronger supplier bargaining power, while special contracts are more prevalent when supplier-specific investments are required. Instrumental variable estimates indicate that a 1 percentage point increase in the special contract share reduces supplier revenue by approximately KRW 259 million. Regulatory enforcement data reveal that over 75% of unfair trade practices occur in direct and special contract transactions, with special contracts showing the highest violation rate per transaction. These findings suggest that contract type is a key channel through which bargaining asymmetries affect economic outcomes. Policy implications include enhancing supplier bargaining power and improving the oversight of contract-specific risks.

Keywords: Contract type selection; Large-scale retailer; Supplier performance; Unfair trade practices; Bargaining power; Transaction costs (search for similar items in EconPapers)
JEL-codes: D23 D43 K21 L81 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kdijep:330701

DOI: 10.23895/kdijep.2025.47.3.1

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