Retail channel management in consumer search markets
We study how a monopoly manufacturer optimally manages her contractual relations with retailers in markets with consumer search. By choosing wholesale prices, the manufacturer affects the degree of competition between retailers and the incentives of consumers to search. We show that depending on whether or not the manufacturer can commit to her price decisions and on the search cost, the manufacturer may be substantially better off choosing her wholesale prices not independent of each other, consciously allowing for asymmetric contracts. Thus, our analysis may shed light on when we may expect sales across different retailers to be positively or negatively correlated. Our model may be able to generate loss leaders at the wholesale level and show the rationale for creating “premium resellers”.
Since Telser (1960), there is a well-established argument that a competitive market will not provide service due to free-riding. We show that with search frictions, the market may well provide service if the cost of doing so is not too large. Any market equilibrium with service provision has two or more firms providing service, implying over-provision of service as the social optimum mandates at most one service provider. Firms that provide service and those that do not can co-exist, where consumers direct their search to service providers first to obtain service, and to non-service providers later to enjoy lower prices.
As other worldwide sourcing industries the retail sector is also prone to various forms of corruption. In particular large retail-chains doing business in developing countries are often faced with corrupt bureaucracy and struggle with dubious administrative processes. On the other hand the purchasing divisions of large retailers decide upon million dollar deals with their suppliers which may tempt manufacturers to pay bribes for winning the deal. While such forms of corruption may be found also for other businesses there are other practices which may be recognised as corruption which are typical in the retail sector. One of the most controversial discussions concerns the practice of so-called slotting fees which are charged to manufacturers as a contribution to the handling costs of the retailer. Since such fees are negotiated in secrecy and not broken down by categories of expenditure they are often seen as a bribery-like payment demanded for getting contracts or staying in business. In the following chapter we will analyze these practices from an economic perspective. We will provide some empirical findings on how such payments are assessed in practice and conclude with some ethical considerations concerning the practice and the effects of slotting fees.
In this article, I examine a model of oligopolistic competition in which consumers search for prices but have no knowledge of the underlying price distribution. The consumers' behaviour satisfies four consistency requirements and, as a result, their beliefs about the underlying distribution maximise Shannon entropy. I derive the optimal stopping rule and equilibrium price distribution of the model. Unlike in Stahl (1989), the expected price is decreasing in the number of firms. Moreover, consumers can benefit from being uninformed, if the number of firms is sufficiently large.
We analyse a model of oligopolistic competition in which consumers search without priors. Consumers do not have prior beliefs about the distribution of prices charged by firms and thus try to use a robust search procedure. We show that the optimal stopping rule is stochastic and that for any distribution of search costs there is a unique market equilibrium which is characterised by price dispersion. Although listed prices approach the monopoly price as the number of firms increases, the effective price paid by consumers does not depend on the number of firms.
Contemporary domination of chain-stores in retailing is modeled, perceiving a monopolistic retailer as a market leader. A myriad of her suppliers compete in a monopolistic competitive sector, displaying quadratic consumers’ preferences for a differentiated good. The leader announces her markup before the suppliers choose their prices/quantities. She may restrict the range of suppliers or allow for free entry. Then, a market distortion, stemming from double marginalization and excessive variety would be softened whenever the government allows the retailer to apply an entrance fee to the suppliers, or/and per-quantity sales subsidies (doing the opposite to usual Russian regulation).
The paper examines the structure, governance, and balance sheets of state-controlled banks in Russia, which accounted for over 55 percent of the total assets in the country's banking system in early 2012. The author offers a credible estimate of the size of the country's state banking sector by including banks that are indirectly owned by public organizations. Contrary to some predictions based on the theoretical literature on economic transition, he explains the relatively high profitability and efficiency of Russian state-controlled banks by pointing to their competitive position in such functions as acquisition and disposal of assets on behalf of the government. Also suggested in the paper is a different way of looking at market concentration in Russia (by consolidating the market shares of core state-controlled banks), which produces a picture of a more concentrated market than officially reported. Lastly, one of the author's interesting conclusions is that China provides a better benchmark than the formerly centrally planned economies of Central and Eastern Europe by which to assess the viability of state ownership of banks in Russia and to evaluate the country's banking sector.
The paper examines the principles for the supervision of financial conglomerates proposed by BCBS in the consultative document published in December 2011. Moreover, the article proposes a number of suggestions worked out by the authors within the HSE research team.