Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 35, No. 3, pp.261-290
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2022
Received 21 Jun 2022 Revised 05 Jul 2022 Accepted 05 Jul 2022
DOI: https://doi.org/10.22904/sje.2022.35.3.003

Buyer Power and Information Sharing

In Kyung Kim ; Vladyslav Nora
In Kyung Kim, Corresponding author, Assistant Professor, School of Economics and Trade, Kyungpook National University, Daegu 41566, South Korea in.kim@knu.ac.kr
Vladyslav Nora, Assistant Professor, Department of Economics, Nazarbayev University, Kazakhstan vladyslav.nora@nu.edu.kz

JEL Classification: D82, D83, L81

Abstract

We examine how buyer power affects the incentives of producers to share information with retailers. First, we develop a theoretical model suggesting that increasing buyer power will discourage information sharing between producers and retailers. Second, we test this prediction by adopting the idea that recommended retail prices (RPRs) serve as an information-sharing device between manufacturers and retailers. Using manually collected information on RPRs for certain grocery products in Korea, we find that the more the sales of a product rely on powerful retailers, the less likely manufacturers will recommend prices. As revealing information can increase industry profits, our analysis highlights potential inefficiencies from the rise of powerful retailers.

Keywords:

buyer power, information disclosure, retail industry, retail price recommendation

Acknowledgments

We are grateful to the seminar participants at KAIST and Sogang University.

The authors declare that they have no conflict of interest.

References

  • Allain, M.-L., C. Chambolle, S. Turolla, and S. B. Villas-Boas, “Retail Mergers and Food Prices: Evidence from France,” The Journal of Industrial Economics 65 (No.3 2017): 469–509. [https://doi.org/10.1111/joie.12153]
  • Baker, G., R. Gibbons, and K. J. Murphy, “Relational Contracts and the Theory of the Firm,” The Quarterly Journal of Economics 117 (No.1 2002): 39–84. [https://doi.org/10.1162/003355302753399445]
  • Battigalli, P., C. Fumagalli, and M. Polo, Buyer power and quality improvements,” Research in Economics 61 (No.2 2007): 45–61. [https://doi.org/10.1016/j.rie.2007.02.002]
  • Bergemann, D., B. Brooks, and S. Morris, “The limits of price discrimination,” American Economic Review 105 (No.3 2015): 921–57. [https://doi.org/10.1257/aer.20130848]
  • Bruttel, L. (2016): “The Effects of Recommended Retail Prices on Consumer and Retailer Behaviour,” Economica. [https://doi.org/10.1111/ecca.12218]
  • Buehler, S., and D. L. Gartner: “Making sense of nonbinding retail-price recommendations,” American Economic Review 103 (No.1 2013): 335–359. [https://doi.org/10.1257/aer.103.1.335]
  • Chen, Z. “Dominant Retailers and the Countervailing-Power Hypothesis,” The RAND Journal of Economics, 34 (No.4 2003): 612–625.
  • Chen, Z., et al., Monopoly and product diversity: The role of retailer countervailing power, Discussion paper, Carleton University, Department of Economics, 2004.
  • Crawford, G. S., and A. Yurukoglu, “The welfare effects of bundling in multichannel television markets,” American Economic Review 102 (No.2 2012): 643–685. [https://doi.org/10.1257/aer.102.2.643]
  • De los Santos, B., I. K. Kim, and D. Lubensky , “Do MSRPs decrease prices?” International Journal of Industrial Organization 59 (2018): 429–457. [https://doi.org/10.1016/j.ijindorg.2018.02.008]
  • Draganska, M., D. Klapper, and S. B. Villas-Boas, “A larger slice or a larger pie? An empirical investigation of bargaining power in the distribution channel,” Marketing Science 29 (No.1 2010): 57–74. [https://doi.org/10.1287/mksc.1080.0472]
  • Faber, R. P., and M. C. Janssen, “On the effects of suggested prices in gasoline markets,” The Scandinavian Journal of Economics 121 (No.2 2019): 676–705. [https://doi.org/10.1111/sjoe.12289]
  • Grennan, M., “Price discrimination and bargaining: Empirical evidence from medical devices,” American Economic Review 103 (No. 1 2013): 145–177. [https://doi.org/10.1257/aer.103.1.145]
  • Guan, X., M. Mantrala, and Y. Bian “Strategic information management in a distri- bution channel,” Journal of Retailing 95 (No.1 2019): 42–56. [https://doi.org/10.1016/j.jretai.2019.01.001]
  • Guo, L., and G. Iyer , “Information acquisition and sharing in a vertical relationship,” Marketing Science 29 (No.3 2010): 483–506. [https://doi.org/10.1287/mksc.1090.0534]
  • Ha, A. Y., and C. S. Tang , Handbook of Information Exchange in Supply Chain Management. Springer, 2017. [https://doi.org/10.1007/978-3-319-32441-8]
  • Hosken, D. S., L. M. Olson, and L. K. Smith, “Do retail mergers affect competition? Evidence from grocery retailing,” Journal of Economics & Management Strategy 27 (No.1 2018): 3–22. [https://doi.org/10.1111/jems.12218]
  • Inderst, R., and G. Shaffer, “Retail mergers, buyer power and product variety,” The Economic Journal 117 (2007): 45–67. [https://doi.org/10.1111/j.1468-0297.2007.02001.x]
  • Inderst, R., and T. M. Valletti , “Buyer power and the ‘waterbed effect’,” The Journal of Industrial Economics 59 (No.1 2011): 1–20. [https://doi.org/10.1111/j.1467-6451.2011.00443.x]
  • Kamenica, E., and M. Gentzkow, “Bayesian persuasion, American Economic Review 101 (No. 6 2011): 2590–2615. [https://doi.org/10.1257/aer.101.6.2590]
  • S. K. Kim, C. K. Kim, and C. H. Cho, A Study on improving wholesale logistics system for strengthennig competitiveness of Korean small-medium sized retailing, Working Papers 2013–680, Korea Institute for Industrial Economics & Trade, 2013.
  • Kong, G., S. Rajagopalan, and H. Zhang, “Revenue sharing and information leakage in a supply chain,” Management Science 59 (No.3 2013): 556–572. [https://doi.org/10.1287/mnsc.1120.1627]
  • Lubensky, D., “A model of recommended retail prices,” The RAND Journal of Economics 48 (No.2 2017): 358–386. [https://doi.org/10.1111/1756-2171.12179]
  • Mittendorf, B., J. Shin, and D.-H. Yoon, “Manufacturer marketing initiatives and retailer information sharing,” Quantitative Marketing and Economics 11 (No.2 2013): 263–287. [https://doi.org/10.1007/s11129-013-9132-4]
  • Puppe, C., and S. Rosenkranz, “Why Suggest Non-Binding Retail Prices?” Economica 78 (310, 2011): 317–329. [https://doi.org/10.1111/j.1468-0335.2009.00827.x]
  • Smith, H., “Supermarket choice and supermarket competition in market equilibrium,” The Review of Economic Studies, 71 (No.1 2004): 235–263. [https://doi.org/10.1111/0034-6527.00283]
  • Stock, J. H., and M. Yogo Testing for weak instruments in linear IV regression, NBER working paper 284, 2002. [https://doi.org/10.3386/t0284]