The Quasi-Judicial Role of Large Retailers: An Efficiency Hypothesis of Their Relation with Suppliers

University Pompeu Fabra Economics and Business Working Paper No. 445

31 Pages Posted: 15 Jul 2000

See all articles by Benito Arruñada

Benito Arruñada

Pompeu Fabra University - Department of Economics and Business; Barcelona GSE

Abstract

The paper explores an efficiency hypothesis regarding the contractual process between large retailers, such as Wal-Mart and Carrefour, and their suppliers. The empirical evidence presented supports the idea that large retailers play a quasi-judicial role, acting as "courts of first instance" in their relationships with suppliers. In this role, large retailers adjust the terms of trade to on-going changes and sanction performance failures, sometimes delaying payments. A potential abuse of their position is limited by the need for re-contracting and preserving their reputations. Suppliers renew their confidence in their retailers on a yearly basis, through writing new contracts. This renovation contradicts the alternative hypothesis that suppliers are expropriated by large retailers as a consequence of specific investments.

Keywords: Retailing, Distribution, Contracts

JEL Classification: L14, L22, L81, K12, M31

Suggested Citation

Arruñada, Benito, The Quasi-Judicial Role of Large Retailers: An Efficiency Hypothesis of Their Relation with Suppliers. University Pompeu Fabra Economics and Business Working Paper No. 445. Available at SSRN: https://ssrn.com/abstract=224583 or http://dx.doi.org/10.2139/ssrn.224583

Benito Arruñada (Contact Author)

Pompeu Fabra University - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Department of Economics and Business
Barcelona, 08005
Spain
+34 93 542 25 72 (Phone)
+34 93 542 17 46 (Fax)

HOME PAGE: http://www.econ.upf.edu/~arrunada

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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