Buyer Power and Functional Competition for Innovation

Roman Inderst, Zlata Jakubovic and Dragan Jovanovic

MPRA Paper from University Library of Munich, Germany

Abstract: Our analysis starts from the observation that with progressive consolidation in retailing and the spread of private labels, retailers increasingly take over functions in the vertical chain. Focusing on innovation, we isolate various reasons for why when a large retailer grows in size, this can lead to an inefficient shift of innovation activity away from manufacturers and to the large retailer. One rationale for this is the retailer's control of access to consumers, which gives rise to a rent-appropriation motive for innovation, next to a hold-up problem. With retail competition, through crowding out the manufacturer's innovative activity, a large retailer obtains a competitive advantage vis-à-vis smaller retailers. We further analyze when inefficiencies are aggravated in case a large retailer's presence threatens the manufacturer with imitation of his innovations.

Keywords: Buyer Power; Innovation; Functional Competition; Imitation (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 L42 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-com, nep-cta and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:61214

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