Files
Abstract
The growing importance of mass distribution has transformed the balance of power between manufacturers and retailers. Regarding the limited effectiveness of numerous laws (Royer, Raffarin, Galland), which were supposed to restrain the increasing power of retailers, an accurate analysis of the relationships between manufacturers and retailers is required. This paper proposes a model where we study the balance of power between manufacturers and retailers by underlining the possibility of switching stores within brand or switching brands within store. The model is a double duopoly where producers and retailers are differentiated at each level. To represent vertical contracting between producers and retailers, we assume that contracts are in two-part tariffs and secretly and bilaterally negotiated. A profit analysis shows that producers' and retailers' differentiation have different consequences. Retailers can take advantage of a higher within-brand competition but a higher within- store competition, always, is detrimental to producers.