The economics of retailing formats: Competition versus bargaining
Tore Nilssen and Bjørn Olav Johansen
Journal of Industrial Economics, volume 64, issue 1, pp. 109-134, March 2016.
We set up a merger game between retailing stores to study the incentives of independent stores to form a big store when some consumers have preferences for one-stop shopping. Such one-stop shopping creates complementarity between products, leading in turn to lower prices after a big store is formed but may also lead to an improvement in the bargaining position vis-à-vis producers through the creation of an inside option that small stores do not have. We find that big stores will not be formed when the stores' ex ante bargaining power vis-à-vis producers is high. Otherwise, an asymmetric situation occurs with only one big store created when one-stop shoppers are abundant.