Retail Environment and Manufacturer Competitive Intensity

41 Pages Posted: 14 Dec 2006

See all articles by Michaela Draganska

Michaela Draganska

Drexel University

Daniel Klapper

Humboldt University Berlin - School of Business and Economics

Date Written: December 2006

Abstract

We study how the intensity of competition and the degree to which manufacturers enjoy market power depends on the retail environment in a given market. Past research has discussed the growing importance of retailers and the power they enjoy over manufacturers. Yet, the empirical literature to date has not determined which retail characteristics have the largest impact on competitive behavior. Our starting point is the estimation of a structural demand-and-supply model, where both consumers' decisions and the strategic interactions between manufacturers and retailers are explicitly modeled. We identify the type of competitive behavior of manufacturers by measuring the deviation from a Bertrand-Nash equilibrium. This measure of competitive conduct is expressed as a function of key retail characteristics such as size of the retailer, its assortment depth, and category expertise. We illustrate the proposed approach using data for the ground coffee category in Germany. Our findings indicate that retail characteristics have indeed a significant effect on competitive intensity among upstream firms and on their ability to exercise market power. Hence, a manufacturer considering entry into a new market should not only take into account its competitors but also the specifics of the retail environment in this market.

Keywords: Retailing, econometric models, econometrics, competitive strategy, Competitive Advantage

Suggested Citation

Draganska, Michaela and Klapper, Daniel, Retail Environment and Manufacturer Competitive Intensity (December 2006). Stanford University Graduate School of Business Research Paper No. 1953, Available at SSRN: https://ssrn.com/abstract=951555 or http://dx.doi.org/10.2139/ssrn.951555

Michaela Draganska (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Daniel Klapper

Humboldt University Berlin - School of Business and Economics ( email )

Spandauer Str.1
Berlin, Berlin 10178
Germany

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