Researchof Buyer Market Power’s Impact On The Manufacturer’s Innovation

Since1990s, although the overall China’s household electrical appliancemanufacturing industry is powerful,the internal structure is seriously decentralizedand we also lack endeavor leading enterprises.At the same time,profit pressure fromall sides affects the manufacturer gains and inhibits the innovative power of theenterprise because of the serious shortage of R&D investment. Sincethecentralization trend of China’s home appliance retail is constantly increasing withlarge retailersemerging,the purchaseconcentration degree of the appliance retailers isincreasingly prominent.With the China’s household electrical appliance retail marketforces becoming powerful,more and more manufacturers suffer from the profitsqueeze. The home appliance retailer mainly utilize three ways including highslotting allowance and establishing its own brand and exclusive dealing toimplement a vertical control on manufacturers. The large number of enterprises andother affected aspects such as the global economy lead less right to speak tomanufacturers so that they are forced to reduce the ex-factory price and extrudeprofit margin. In this case, it leads to a major result that manufacturers reduce R&Dexpenses which inhibitinnovative behavior of them.In this context, combining main research at home and abroad of this stage astheoretical evidence base,this paper analyzes the influence of buyer market power oninnovation of manufacturer.In the theoretical model, this paper chooses cost reductionas innovationindicator and divides buyer market power sources into two cases, which are numberof firms and differences degree. We build game model aiming at problems that howbuyermarket power affects manufacturer profits and the level of cost reduction andconsumer’s surplus social welfare when the number of production of the upstreamis one or two. In case study, we use Gree as the object of study and analyze thechange of earning and R&D investment of Gree under its peculiardistributionchannel model after Gree gets rid of buyermarket power gradually.Finally, according to the conclusions of the theoretical and empirical analysis,we put forward countermeasure and suggestion from the government level and theenterprise level to enhance the innovation capability of China’s household electrical appliance manufacturing industry.