Buyer power, product assortment and asymmetric retail formats

Abstract

We consider two manufacturers producing two symmetric and independent goods. They sell them through two undifferentiated retailers (homogeneous retailers). Manufacturers propose linear contracts. Before supply contracts are set by producers, retailers decide whether to be a multiproduct retailer by carrying the two goods or a single product retailer and sell only one good. In this symmetric setting, we find asymmetric retail formats in equilibrium, which results in lower total welfare compared to a situation where both retailers would be multi-product retailers.