Welfare effects of dominant retailers

Abstract

This paper analyzes three variants of a model to study the welfare effects of dominant retailers’ presence in a competitive-goods market. We consider a competitive market with numerous consumers and producers who manufacture and retail. We assume that the dominant retailers are more cost-efficient in retailing than the producer and have market power both in upstream and downstream markets. In our model, entry of two dominant retailers always benefits the market if the producer stays in the retail market to generate competition pressure. However, if the dominant retailers replace the producer in retailing, there are trade-offs between cost-efficiency and competition.