Buyer Power Study On Process Innovation Of The Manufacturer

The purpose of this paper is to study the impact of retailer buyer power to the process innovation of the manufacturer. This paper constructed a market structure of one manufacturer with two retailers:In the upstream market, the one manufacturer provided the same kind of products to both of the two retailers, while, in the downstream market, the two retailers competed with each other in the form of Cournot competition. Assuming that one of the retailers is a dominant retailer who can get wholesale price discounts from the manufacturer, and the other is a fringe retailer who will buy the product just in the level of the wholesale price. This discount is defined as the dominant retailer’s buyer power. Through the research, we found that the impact of buyer power on the process innovation depends on the innovation efficiency, when the manufacturer’s process innovation efficiency is high, the dominant retailer’s buyer power will suppress the manufacturer’s process innovation; when the innovation efficiency is low, the buyer power will facilitate an increase in the manufacturer’s process innovation. In addition, when the innovation efficiency is high, the leading retailer’s wholesale price is a decreasing function of its buyer power, while the fringe retailer’s wholesale price is an increasing function of the dominant retailer’s buyer power, and the difference between the wholesale prices of the dominant and the fringe is also an increasing function of buyer power; when the innovation efficiency is low, the leading retailer’s wholesale price is a increasing function of its buyer power, while the fringe retailer’s wholesale price is an decreasing function of the dominant retailer’s buyer power, and the difference between the wholesale prices of the dominant and the fringe is also an decreasing function of buyer power. Retail prices and total sales of products have nothing to do with buyer power. In addition, the profit of the supplier will reduce along with the dominant retailer’s buyer power. Finally, this paper introduced a case study to verify the correctness of the proposition. This case collected pharmaceutical industry data of Hebei and Jiangsu provinces during 2003 and 2011 as the sample of this study. Through data processing and quantitative analysis, we finally demonstrated the conclusions of the theoretical analysis just as expected.