51. Manufacturer-Retailer Relationships and the Distribution of New Products
- Author
-
Bowen Luo
- Subjects
History ,Polymers and Plastics ,business.industry ,Consumer demand ,Distribution (economics) ,Market concentration ,Industrial and Manufacturing Engineering ,food.food ,Market structure ,Hard cider ,food ,Incentive ,Leverage (negotiation) ,Business ,Business and International Management ,Empirical evidence ,Industrial organization - Abstract
Manufacturer-retailer relationships are often cited as an important determinant in product distribution. By coordinating the channel and aligning incentives, relationships can significantly affect both manufacturers’ and retailers’ profits and contribute to market concentration. However, empirical evidence is scarce because relationships are usually trade secrets. I study how beer manufacturers leverage their relationships with retailers to promote new products in the U.S. hard cider market. I present novel empirical evidence of mutual preferential treatments between manufacturers and retailers in assortment choices and wholesale pricing. I interpret the finding as pair-specific relationships sustained through repeated interactions, and use industry regulations on trade and wholesale pricing to address alternative mechanisms, including non-linear contracts. I estimate a structural model of consumer demand, retail and wholesale pricing, and assortment that incorporates the relationships. The results show that the relationships increase Anheuser-Busch InBev’s and MillerCoors’ new cider availability by 17.7% and 7.2%, respectively, and present a double win to both the manufacturers and retailers.
- Published
- 2021