Retail Mergers, Buyer Power and Product Variety

Abstract

This article analyses the impact of retail mergers on product variety. We show that, following a merger, a retailer may want to enhance its buyer power by committing to a 'single-sourcing'purchasing strategy. Anticipating further concentration in the retail industry, suppliers will strategically choose to produce less differentiated products, which further reduces product variety. If negotiations are efficient, the overall loss in product variety may reduce consumer surplus and total welfare. With linear tariffs, however, there may be a countervailing effect as the more powerful retailer passes on lower prices to final consumers. © 2007 The Author(s). Journal compilation Royal Economic Society 2007.