The Impact of Upfront Payments on Assortment Decisions in Retailing
There is a contentious debate about the exclusionary effects of upfront payments to be made by manufacturers to place their products on retailers’ shelves. Analyzing a two-stage bargaining process with one downstream retailer and a pool of upstream manufacturers, we find that upfront payments lead to a smaller assortment if the retailer’s bargaining power is high enough and the suppliers’ products are close substitutes.
KeywordsBuyer power Upfront payments Retailing
We thank Rainald Borck, Stéphane Caprice, Paul Heidhues, Roman Inderst, Markus Reisinger, Christian Wey, and participants at the EEA congress (Budapest 2007), the EARIE congress (Valencia 2007), as well as seminar participants at Toulouse (2008) for helpful discussions and valuable comments. Financial support from the German Science Foundation (DFG) is gratefully acknowledged. Previous versions of the paper have been circulated under the title “Bargaining in Input Markets and Retailer’s Assortment Decision”.
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