Successive Monopolies and Product Variety

Abstract

If there is a shift of market power from manufacturers to retailers or from retailers to manufacturers, how are consumers affected? When the value chain has successive firms that each have market power, the shifting balance of power up or down the chain (away from the consumer or towards the consumer, respectively) can lead to a further fractionation of the consumer market, meaning greater product variety. If retailers have a minimum efficient scale greater than manufacturers, a shift in bargaining power from manufacturers to retailers will increase consumer welfare while market fractionation can enhance firms’ abilities to price discriminate, capturing some of this consumer surplus.