Buyer Power in U.K. Food Retailing: A 'First-Pass' Test

Abstract

The potential existence of buyer power in U.K. food retailing has attracted the scrutiny of the U.K.'s anti-trust authorities, culminating in the second of two comprehensive regulatory inquiries in recent years. Such inquiries are authoritative but correspondingly time-consuming and costly. Moreover, detection of buyer power has been dogged by the paucity of reliable evidence of its existence. In this paper, we present a simple theoretical model of oligopsony which delivers quasireduced form retailer-producer pricing equations with which the null of perfect competition can be tested using readily available market data. Using a cointegrated vector autoregression, we find empirical results that show the null of perfect competition can be rejected in seven of the nine food products investigated. Though not conclusive on the existence of buyer power, the proposed test offers a means via which the behaviour of the retail-producer price spread is consistent with it. At the very least, it can corroborate the concerns of the anti-trust authorities as to whether buyer power is potentially one source of concern.

The Character of Price Transmission Within Milk Commodity Chain in the Czech Republic

“…The question is, if market power is transferred in either supply, or demand direction in commodity chain. As well, the impact of the oligopoly and oligopsony power within commodity verticals points, Weldegebriel (2004) and Lloyd et al (2009).…”

Empirical “first-filter” test for the existence of buyer power in the Finnish food supply chain

“…As mentioned in the introduction, this study utilizes a theoretical approach presented by McCorriston (2001) and Lloyd et al (2009) exploiting the presence of exogenous shocks in order to identify the existence of buyer power in both upstream and downstream prices. In their theoretical framework, firms are assumed to produce a homogeneous product and pursue quantity-setting strategies.…”

“…Derived from the NEIO model with the help of empirical time series analysis, Lloyd et al (2009) developed a test to measure oligopoly and oligopsony market power. The method provided a "first-filter" test for the possible existence of oligopoly /oligopsony market power in the UK food sector.…”

“…However, the claim lacks empirical quantitative study to support it. Therefore, in this paper we attempt to use method of Lloyd et al (2009) to offer a "first-filter" test in the Finnish food supply chain. By assuming that processing and retailing are one integrated sector can serve as a useful device for characterising how prices are transmitted in the food market, albeit in a simplified form.…”

“…The purpose of this paper is to investigate the possible existence of buyer power in the Finnish food supply chain. More specifically, we follow an approach used by Lloyd et al (2009) to measure oligopsony power among the Finnish food industry and retailers against farmers. The results suggest that the spread between producer and retailer prices in Finland is not consistent with perfectly competitive behaviour, and might thus be caused, at least as a candidate amongst other factors, by the existence of oligopsony power in the Finnish food supply chain.…”