Research Of Welfare Effect Of Slotting Allowance Based On The Retailer’s Market Power In Our Country

Along with high speed development of our country economy and continuous improvement of people consumption ability,our country retail industry have been developing rapidly and persistently.Retail formats shows diverse development.changing from one single retail format as department store to many kinds of formats such as the chain supermarket,large stores.speciality stores.discount stores and so on.The large supermarkets which run in the chain mode of operation develop more rapidly than the others.After many years development.the large chain supermarkets have the main retail format and the main consumption place in our country.The rapid development of the large chain supermarkets lead to retailers from the subsidiary position to the leading position in the vertical relationship of industrial chain.and change in the competition pattern of retail market in our country. Under this circumstance,Manufacturers have to depend on the retails’ channel to sell their products.Therefore retailers gradually possess a certain level of market power,when they negotiate with the manufacturers.their ability of bargain is enchanced.Because the fierce price competition in the product market caused by the homogeneity of the product,the retailers implement their market power only through vertical restraints to the upstream manufacturers.Vertical restraints include slotting allowances and exclusive deal and RPM and so on.Slotting allowances is the most common way of vertical restraints.The simple meaning of slotting allowances is various fees charged by the retailers who have market power. The slotting allowances charged by the retailers who possess a certain level of market power increase gradually and lead to the contradicetion between retailer and manufacturer and have a negative influence to the normal cycle of industrial chain.The contradiction caused by slotting allowances charged by the big retailers becomes more serious gradually.Howerver, various of our country’s policies cannot ease the contradiction between retailers and manufacturers properly.Therefore, this article analyse retailer’s market power and slotting allowances and welfare effect of slotting allowance.we hope this research can offer certain enlightenment to ease the contradiction between retailers and manufacturers.Firstly.this paper summarizes the development situation and characteristics of our country’s retail market.we describe the overall market concentration of our country’s retail industry through calculation of the CR100index from2002to2011.At the same time,because the retail industry is significantly regional and the competition between different retail format is alleviated,we describe the regional market concentration of our country’s retail industry by calculating the CR4index of Shanghai supermarket industry from2003to2010.We find that although the overall retail industry concentration of China is lower,the regionalretail industry concentration of our country is so high that the retail market is regional oligopoly.In some region,some retailers have a big market power and many branches.Therefore,they possess market power.Secondly,this paper find that excess production capacity in the upstream and the mode of chain operation and merger expansion and the change of market demand are the reasons that retailers possess market power.And this paper analyses the social welfare when retailers implement their market power,I do believe that slotting allowances charged by retailers is the most common and important way of vertical restraint.This paper introduces the generalizations and the current situation of slotting allowancs in our country and analyses the reason that retailers charge manufacturers slotting allowances from the retailers’ perspective,the conclusion is charging for slotting allowances is the best choice of retailers.This paper find that retailers choose different profit model to different manufacturers according to their contribution to retailers’ profits coming from manufacturers’ products is the reason that retailers charge different manufacturers discriminatory slotting allowances. At the same time,this paper analyses the drawbacks that retailers charge to much. This paper summarize three vertical market structure in which retailers possess market power.First.it is a bilateral monopoly,which means upstream and downstream market structures are both monopoly.Second,upstream market structure is oligopoly while downstream market structure is monopoly.Third,upstream market structure is oligopoly or monopoly while downstream market structure is oligopoly.Based on the summarization.this paper analyses the social welfare when retailers charge manufacturers slotting allowances under the condition that the demand function is linear.when the vertical market structure is bilateral monopoly.the behaviour of collecting slotting allowances will increase social welfare.when the vertical market structure is upstream oligopoly and downstream monopoly.the behaviour of collecting slotting allowances has no effect on social welfare.when the vertical market structure is upstream oligopoly or monopoly and downstream oligopoly.the behaviour of collecting slotting allowances will reduce social welfare.And this paper finds that the social welfare that retailer charge slotting allowances is closely related to the vertical market structure and downstream market circumstance.This paper analyses the recent case that COFCO and93cereals and oil company contradicted with Carrefour because of the high slotting allowance based on the conclusion from the preceding section.Finally.based on the analysis from the preceding section.we find some questions in the policy about the slotting allowances in our country,this paper points that whether retailers collect slotting allowances reasonable or not.the standard should be the overall social welfare effect of the whole industry chain.we should analyse every kinds of bases and at the same time consider the characteristics of our country’s retail industry.improve related policies and regulations and establish the independent and scientific enforcement system.