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The Balance of Power between Producers and Retailers: a Differentiation Model

Published online by Cambridge University Press:  17 August 2016

Marie-Laure Allain
Marie-Laure Allain*
Affiliation:
CNRS École Polytechnique et CREST**
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Summary

This paper argues that the balance of power between producers and retailers depends on the relative degrees of differentiation at the two levels of the vertical structure. We propose an extension of Hotelling’s model in which two producers, competing in prices with horizontally differentiated products, face two horizontally differentiated retailers also competing in prices. We study the setting of producers’ and retailers’ margins. We show that when retailers are more differentiated than producers, they dominate the relationship and their margin is higher than producers’.

Résumé

Résumé

Cet article étudie l’impact des différenciations entre producteurs et entre distributeurs sur leurs rapports de force. On construit une extension du modèle d’Hotelling à deux dimensions dans lequel deux producteurs sont en concurrence à la Bertrand en produits différenciés horizontalement et font face à deux distributeurs différenciés horizontalement et eux aussi en concurrence à la Bertrand. On étudie l’influence des deux degrés de différenciation sur les marges des producteurs et des distributeurs, et on montre que lorsque les distributeurs sont plus différenciés que les producteurs, leurs marges sont plus importantes, et le rapport de force est en leur faveur.

Keywords

Vertical relationshipsdifferentiationL13L22Relation verticaledifférenciationL13L22
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 68 , Issue 3 , 2002 , pp. 359 - 370
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2002 

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Footnotes

*

I thank Laurent Flochel, Anne Perrot, Bernard Salanié and two anonymous referees for their comments.

**

CNRS-Laboratoire d’Econométrie, École Polytechnique, 1 rue Descartes 75005 Paris (Tel: 33 1 55 55 85 41, E-Mail: marie-laure.allain@polytechnique.fr) et CREST-LEI.

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