Are Supermarkets Squeezing Small Suppliers? Evidence from Negotiated Wholesale Prices

27 Pages Posted: 8 May 2018

See all articles by Carlos Noton

Carlos Noton

Dept of Industrial Engineering - University of Chile

Andrés Elberg

Universidad Diego Portales

Date Written: May 2018

Abstract

Conventional wisdom is that big‐box retailers squeeze the profits of small suppliers. Underlying this belief is the assumption that relative market size is the primary source of bargaining leverage. Using actual wholesale prices, we study profit‐sharing between large retailers and suppliers of different size. We find that the median supplier earns 42% of the channel surplus, and that some very small suppliers attain a share of the channel surplus close to that of the largest supplier (about 68%). Using a Nash bargaining model, we find that small suppliers can gain bargaining leverage by maintaining a base of loyal customers.

Suggested Citation

Noton, Carlos and Elberg, Andrés, Are Supermarkets Squeezing Small Suppliers? Evidence from Negotiated Wholesale Prices (May 2018). The Economic Journal, Vol. 128, Issue 610, pp. 1304-1330, 2018. Available at SSRN: https://ssrn.com/abstract=3174979 or http://dx.doi.org/10.1111/ecoj.12423

Carlos Noton (Contact Author)

Dept of Industrial Engineering - University of Chile ( email )

Beauchef 851
Santiago, RM
Chile

HOME PAGE: http://www.dii.uchile.cl/~cnoton/

Andrés Elberg

Universidad Diego Portales

Vergara 210
Santiago
Chile

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