Welfare Implications of Supplier Encroachment With Consumer Shopping Costs

Stéphane Caprice and Shiva Shekhar

No 25-1629, TSE Working Papers from Toulouse School of Economics (TSE)

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; Downstream Competition and Consumer Shopping Costs. (search for similar items in EconPapers)
JEL-codes: L13 L22 L42 L81 (search for similar items in EconPapers)
Date: 2025-03
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:130442

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