Based Retailer Monopoly Power, Vertical Relationships And Competition Policy

Since the 1970s, the world has undergone tremendous changes in retailindustries. The general upsurge of large retailers and the significant increase of theretail market concentration show that the monopoly power of retailers beingreinforced. When retailers own monopoly power, they will use their dominant statusin the industrial chain implementing various vertical control means against producers,such as charging slotting fees, requiring exclusive dealing contracts, tapping privatebrand goods and so on. The implementation of these strategies has resulted incontinuous contradictions between supplier and retailers. At the same time, that hasattracted wide attention from the government. But so far no effective policies havebeen worked out yet.Facing these contradictions, the theory of industrial organization is concernedabout the topic of the vertical relationship with monopolistic retail. Specifically, whatvertical control strategies are used by retailers depending on their monopoly poweragainst producers? How do private incentives stimulate these vertical controlstrategies? From the perspective of social incentive, how do the enhancement of retailmonopoly power and various vertical control strategies make effects on the welfarefor the manufacturer, retailers and consumers? On this ground, what the competitionpolicies should be established by the governments, who take the maximum socialwelfare as their responsibilities, against the retail industry and the correspondingvertical restrains?Although, as a frontier area in the modern theory of industrial organization, thevertical relationship has yielded a rich harvest, and the anti-trust judicial practice inthe West has aimed at the vertical control implemented by the retailers as the focus,there still exists a big gap between the reality and the theoretical research. Mostresearches on the vertical issues are still followed the classic assumptions in themicro-economics, which assumed that manufacturers monopoly and retailerscompetitive. Few researches about monopoly retailers are usually simple and biased.So far there is no comprehensive and systematic study on this topic.To this end, this paper has strong theoretical and practical significance, whichaimed at the increasing monopoly power of retailers, and in a systematic framework,from the perspective of the industrial chain dissected the vertical relationship betweenmanufacturers and retailers, and finally brought forward the corresponding competition policies.We first empirically demonstrated the realities that the retailer indeed hasmonopoly power. Due to the significant regionality and the complementarity betweenvarious retailing formats, we must take the regional market and retailing format thesetwo factors into account for measuring the degree of concentration of the retail market.Using the 1998-2004 data of major supermarkets in Shanghai, we empirically testedthe market concentration of the supermarket in Shanghai. The results showed that theretail industry in China was presenting a kind of regional oligopoly trend. Under thispremise, we on the base of industrial chain established a relatively completeframework of the "SCP-R (vertical market structure, vertical control conduct, marketperformance of the industrial chain, and regulation policy). Then from the perspectiveof monopoly retailers, we elaborated the various elements of the analytical framework,thus laying the foundation for this Full thesis.In accordance with the common vertical restraint strategies, this paper analyzedthe slotting fee, the exclusive dealing and the private brand in turn. We constructeddifferent games from existing models. Through comparing all equilibrium resultsunder different vertical market structures and environments, we found out the keyfactor affecting the market performance; then analyzed and evaluated their privateperformances and social welfare. Finally, the corresponding competition policies wereproposed. In detail, the chapter about slotting fee analyzed three kinds of verticalmarket structures and showed that under the bilateral monopoly context the charge ofslotting fee would enhance the social welfare; with competitive upstream andmonopoly downstream, the slotting fee were neutral for social welfare; withmonopsony power in the buyer side and without monopoly power in the seller side,the magnitude of social welfare would also depend on the attribute of the demandfunction. About exclusive dealing, we compared it with the common agency provingthat with differential products the exclusive dealing would result in vertical marketforeclosure. And with the increase of the level of substitution between two products,the loss of social welfare from ED would be reduced. The analysis of private brandwas based on the reality of lower qualities of retailers' private brands in present China.We took the product quality as a viable reviewing two kinds of market structures of"one-to-one" and "two-to-one", then got following conclusions that the social welfarefrom private brand was not only affected by the vertical market structures, but alsowas closely related to the quality of products of private brand and manufacture brand. As the research about the retailers' vertical control strategies was based onweaker producers, when the manufacturers had strong monopoly power, theenhancement of retailers' monopoly power would become the countervailing poweragainst producers. Since the concept of "countervailing power" was invented byGalbraith, the discussion about it has not been stopped with a clear coherence.Through analyzing three situations including bilateral monopoly, retailers with fringecompetitors and symmetric competitors, this thesis drew an important conclusion thatthe social welfare from retailers' countervailing power would depend on the verticalmarket structures (including the level of substitution between alternative retailers).On the basis of theoretical analysis, at last this paper from the level of the retailindustry discussed the competition policies in China. Because of relatively fewinternational theoretical researches as well as the uncertainty of research findings,adding some special issues in China's retail industry, all these factors led to theWestern theories less useful for competition policies in China's retail industry. Atpresent, China's anti-trust law has not yet made a formal appearance, so the domestictheoretical researches in this area are rarer. Therefore this paper combining somespecial circumstances at home systematically studied this topic. To a certain extent, itmade up for the gap between the theory and the reality and provided reasonablerecommendations and guidance for the formulation of competition policies in retailindustry in China.