The Buyer Power Effect of Retail Mergers: An Empirical Model of Bargaining with Equilibrium of Fear

Céline Bonnet (), Zohra Mechemache and Hugo Molina
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Céline Bonnet: 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, UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse

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Abstract: We develop a bilateral oligopoly framework with manufacturer-retailer bargaining to analyze the impact of retail mergers on market outcomes. We show that the surplus division between manufacturers and retailers depends on three bargaining forces and can be interpreted in terms of an "equilibrium of fear". We estimate our framework in the French soft drink industry and find that retailers have greater bargaining power than manufacturers. Using counterfactual simulations, we highlight that retail mergers increase retailers' fear of disagreement relative to that of manufacturers, which weakens their buyer power and leads to higher wholesale and retail prices.

Keywords: Soft drink industry; Bilateral oligopoly; Bargaining; Retail mergers (search for similar items in EconPapers)
Date: 2023-10-20
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Published in RAND Journal of Economics, 2023, 52 p. ⟨10.2139/ssrn.3938971⟩

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Working Paper: The Buyer Power Effect of Retail Mergers: An Empirical Model of Bargaining with Equilibrium of Fear (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04785778

DOI: 10.2139/ssrn.3938971

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