Vertical Reasearch Of Buyer Power And Slotting Allowance Of The Big Retailers

In the late 20th century, with the rise of large chain stores in developed countries, the global retail industry began a new change, just like scale expansion, increasing market concentration. Retailer turn their inferior bargaining position into the comparative advantages of vertical relationships. And they began to use this advantage to ask upstream suppliers to pay numerous slotting allowances. But this behavior is very harmful to upstream suppliers, which may make the conflict of retailer and supplier deeper and deeper. In order to solve this problem, United States and European countries began to make laws which can constrain the retailers'behavior. In China, chain retailer business began to develop largely from the 1990s.At the same time, Carrefour, new arrival, take the low risk business model of slotting allowance which is used by most domestic retailers. In a certain period of time, this model of slotting allowance promote China's large-scale retail development and expansion, but with the economy growing, retail industry becoming increasingly sophisticated and higher market concentration, this model increasingly being criticized by most people, especially suppliers for which damaged their interests, squeezed their profits, and which is also harmful for development of retailers and suppliers. However, our country have not put in place a series of related policies and laws yet, which made the behavior of big retailers out of control, and get worse. Then academics and experts began to pay more attention to vertical relationship between suppliers and retailers, and some related problems. Some researches can play the important role to illustrate this problem,it is also benefit for China's current economic development, although they are not a lot. Therefore, my paper focus on the retail slotting allowance and buyer power issue in order to give some advice and have some implication of solving this problem.Vertical relationship is an important research content in the theory of industrial economics. But in fact,, the research on buyer power is much less than any other field in vertical relationship. The classical theories conclude Galbraith hypothesis, the efficiency theory and anticompetitive theory. My paper is mainly based on anti-competitive theory to analyze the issue of big retailer's buyer power and slotting allowance.Based on the status of our current retail industry and retail market concentration, this paper get a conclusion that China's retail industry is in maturity stage, in which there is buyer power. Although compared with European and American countries, the whole retail industry concentration of China is a little lower. According to criteria for the classification of industrial concentration which proposed by Bain and Japan's Ministry, China's retail industry is fragmented oligopolies. But in fact, in 21st century, the rate of our retail industrial concentration is go up rapidly, which keep at nearly 20%.In addition, retail industry is significant regional, so we still need to consider the regional concentration on the basis of the overall concentration. Accordingly, I collect the relevant data of 8 major cities to figure out their regional concentration which can prove the retail industry of our country is regional oligopoly.After proved buyer power existed in our retail industry, I analyzes the main reasons of buyer power conclude three aspect:upstream manufacturers, downstream suppliers and consumers. Then, I analyze the impact of retailer's buyer power on social welfare intensively, and divide it into three different assumptions to discuss. First, upstream suppliers are perfectly competitive, while downstream retailers are monopsonies and competitive sellers. Second, upstream suppliers are perfect competition, while retailers are both monopolies of buyers and sellers.Third, it is a bilateral monopoly, which means upstream suppliers are the monopoly sellers, and downstream retailers are monopsonies.After that, I have built a two-stage static game model, which analyze the impact on market equilibrium when large retailers start to charge slotting allowance. The assumption of the model is that there are three kinds of people including city suppliers, retailers and consumers. Supplier market is perfectly competitive, and there are a large number of suppliers, products of which are homogeneity. Retailer market is oligopoly, in which there are a leader of large-scale and a lot of followers. Consumers have their different preferences of product and retailer. According to the above, I set up a model and get following conclusions through analyzing the market equilibrium after slotting allowance charged. Slotting allowance will increase market share and profits of large retailers, but will squeeze those small retailers and make their sales, profits reduced. To consumers, the effects are both of positive and negative. It can also produce negative impact to suppliers, although it didn't impact negatively on suppliers in this model, in fact, most retailers' profit are grabbed by big retailers.Finally, from the view of legal regulation, I analyze the status and shortages about the legal regulation of buyer power and how to learn and use from U.S, EU, Japan and South Korea's related successful experience under our country's situation. Our country need to take some measures to enact and improve related rules and laws, establish an independent enforcement power of the antitrust in order to maintain and promote the healthy development of China's retail industry.