Retail Market Power Research Articles

Pricing strategy research in the dual-channel pharmaceutical supply chain considering service.

In the context of developing a new era, the pharmaceutical supply chain market has gradually transformed from a seller's market to a buyer's market. The closer the consumers are, the greater the market pricing power, so the pharmaceutical market power of manufacturers and retailers has also changed. This study considers the effect of service on the pricing strategy of the pharmaceutical platform supply chain. The study aimed to coordinate optimization, and the coordination strategy of the pharmaceutical platform supply chain of complementary products is discussed mainly by researching the price and service factors. Various situations are studied by hypothesis and model solving. This study uses Stackelberg game decision-making. Manufacturers are at the forefront of platform supply chain decisions. The research found that the price was lower under centralized decision-making than under decentralized decision-making. Coordination between price and service levels needs attention in the pharmaceutical platform supply chain of complementary products, and the service level should be controlled within a certain range. Only by improving the service level can enterprises maximize profits, providing a theoretical basis for pharmaceutical supply chain pricing strategy research. Supply chain members must strive to improve service levels to improve medical supply consumers' (patients) psychological satisfaction level. Service levels do not fully mitigate channel conflict. Therefore, pharmaceutical complements have become a way to alleviate the conflicts in the pharmaceutical platform supply chain.

Market integration and asymmetric price transmission in selected domestic markets for major staple foods in Uganda

In this study, we examined the price transmission dynamics and market integration among domestic markets for Uganda’s major staple foods (matoke, maize, and beans) utilizing the Granger causality analysis, bounds test, Wald test for long- and short-run asymmetry, and the nonlinear ARDL model. Among the key findings, the causal order between wholesale and retail commodity prices flows unidirectionally forward from the wholesale to the retail level across all markets. Wholesale and retail prices for Uganda’s staple foods are interlinked in all markets, and spatially separated markets are also well integrated. The Wald test revealed asymmetric price transmission (APT) in speed alone for the pairs wholesale and retail prices of matoke in Kampala, and wholesale prices of matoke in Mbarara with Kampala retail prices, both APT in magnitude and APT in speed for the pairs wholesale and retail prices of beans in Kampala, wholesale and retail prices of maize in Masindi, and wholesale prices of beans in Masindi with wholesale and retail prices in Kampala. We also found that in the long run, retail prices respond more strongly to wholesale price increases than decreases, an implication of positive APT in the marketing supply chain of Uganda’s major staples. This may be linked to information asymmetry between traders and consumers, traders’ adjustment costs, production levels, inventory management, and the market power of retailers. We thus concluded that final consumers are more likely to experience an increase rather than a decrease in the prices of staples at the retail level, while retailers are more likely to benefit from price decreases at the wholesale level.

Impact analysis of renewable portfolio standard on retail power market considering quota heterogeneity

To promote the development of the renewable energy (RE) industry, China officially implemented renewable portfolio standard (RPS) in 2020, the policy effect of which is closely related to the amount of renewable power offered to users by power-selling enterprises. We use evolutionary game theory to analyze the behavioral strategies of regional governments, regulatory authorities, and power-selling enterprises under RPS, and build a system dynamics (SD) model to determine the influence of the relevant parameters on stakeholders’ strategy making considering quota heterogeneity. The results show that: (1) enterprises evolve to being stable earlier in high-quota area than in low-quota area, which infers that RE development has a certain bottleneck in the initial stage and that RPS can play an effective role; (2) a high certificate price can not only help power selling companies evolve to being stable, but also promote the withdrawal of governments subsidies; (3) to increase the proportion of renewable electricity, the net profit of RE power should not be lower than that of conventional energy; and (4) the incentive effect of subsidy income is not stronger than that of resale income, while when compared with penalty, the incentive effect is stronger, and penalty is not more severe and actually better. Importantly, the results provide policy suggestions for the development of RPS.

Estimating the degree of market power in the vegetable market in Japan

AbstractTo adequately capture the market structure of vegetables in Japan, it is necessary to develop an oligopolistic model due to the potential market power of producers vs. retailers. We first estimate the market power between producers and retailers by extending the bilateral oligopoly model. Next, we evaluate the role of the wholesale market and its effect on economic welfare. Our results indicate that the wholesale market benefits both producers and consumers through a reduction in retail margins. This study contributes to the industrial organization literature by developing a bilateral oligopoly model and empirically measuring the wholesale market system in Japan.

The effect of greenness- and price-based competition on a product's environmental performance

This study considers two retailers that offer substitutable products and compete in a greenness- and price-sensitive market. The retailers rely on supply chains that have different costs, replenishment times and carbon intensities. The demand is stochastic, and the inventory replenishment time is also stochastic. Each retailer decides the greenness of its product (carbon intensity), the price and the order size to maximize its expected profit under a service level constraint. The mean demand for each retailer decreases in its price and carbon intensity and increases in other retailer's price and carbon intensity. The customers' switchovers are, thus, governed by disparities in carbon intensity and price. The retailers may have different market powers since the total demand is not necessarily equally shared between them when they offer the same price and greenness level. We derive analytically the best response of each retailer to other retailer's decisions at the Nash equilibrium. We determine the market conditions that lead the competing retailer to offering a greener or a dirtier product than the product it would have offered in a monopolistic situation. We explain how the retailer's market power impacts on its greenness strategy under different market conditions. We also investigate insights into the impact of disparities in transportation carbon emissions, the order size decisions, and the retailers' optimal profit under the different competition scenarios.

Optimal joint demand and virtual bidding for a strategic retailer in the short-term electricity market

This paper proposes a bilevel stochastic optimization model for generating the optimal joint demand and virtual bidding strategy for a strategic retailer in the short-term electricity market, where virtual bidding is used to improve the retailer's market power in the day-ahead (DA) electricity market. In the proposed model, virtual bidding can be used at multiple buses, which are not limited to the locations of the demands of the strategic retailer. In the bilevel stochastic optimization model, the upper level problem maximizes the total profit of demand and virtual bidding, while the lower level problem represents the DA electricity market clearing process; the uncertain demands of the strategic retailer and real-time (RT) electricity prices in the market are represented by scenarios; and the Conditional Value at Risk (CVaR) is used for risk management. By using the duality theory, Karush–Kuhn–Tucker (KKT) conditions and big M method, the proposed bilevel nonlinear optimization model is converted into a single-level mixed-integer linear programming (MILP) problem, which can be solved efficiently by existing commercial solvers. Case studies are performed to validate the proposed model and study the impacts of various model parameters on the strategic retailer's joint demand and virtual bidding strategy.

Governing the Fix: Energy Regimes, Accumulation Dynamics, and Land Use Changes in Japan’s Solar Photovoltaic Boom

This article examines the role of recent reforms to Japan’s energy governance regime in stimulating fixed capital investments in solar photovoltaic (PV) systems and analyzes the investment trends and land use changes that are emerging as a result. Following the March 2011 Fukushima nuclear disaster, the Japanese government passed a feed-in tariff (FIT) to incentivize renewable energy production, followed by the liberalization of the small-scale retail power market. Although recent geographical scholarship suggests that fixed capital investments in renewable energy might function as a socioecological fix for capital accumulation, analyzing these reforms through the lens of institutional political economy reveals a crucial limitation facing investors seeking renewed accumulation through a socioecological fix: The state, as the extraeconomic agent charged with sustaining accumulation at the national scale, maintains the capacity to shape conditions of profitability in the electric power sector. Additionally, this article offers a typology of investment patterns and land use changes that have resulted from the growing market in renewables. The guaranteed return on investment offered by the FIT has stimulated demand for space to site solar projects. This demand, coupled with Japan’s strict farmland protections, has led investors to pursue projects in novel configurations that challenge established assumptions about power density and the land demands of solar PV. By bringing the insights of Marxian state theory to bear on the political ecology of fixed infrastructure, this article contributes an empirical analysis of the political ecological dimensions of state action in governing renewable energy transitions.

Abuse of Dominance in the Case-law of the Hungarian Competition Authority – a Historical Overview

This paper provides a historical overview of the case-law and practices applied by the Hungarian Competition Authority (HCA) in abuse of dominance cases. The paper is co-written by practitioners of complementing antitrust fields, which ensures that both legal and economic considerations are explored. The paper identifies the unique characteristics of Hungarian legislation and case-law and critically evaluates them in light of EU competition law and economics principles. We analyse (i) the reasons for the high number of exploitative cases before 2010, (ii) the general principles applied by the HCA in exclusionary cases, (iii) the cost allocation assessments in dominance cases, and (iv) the issue of significant market power of retailers. The general starting point is that, judging by the number of dominance investigations, there is less antitrust enforcement by the HCA in recent years. However, the article concludes that less enforcement does not mean weaker enforcement. In fact, the quality of dominance cases, considering both legal and economic aspects, has increased over time. This tendency has also led to higher legal certainty in Hungary, which is beneficial for market players. Stronger criticism is only formulated against the concept of significant market power of retailers.

The relationship between accessibility and price – The case of Swedish food stores

Food accessibility has been an important issue for as long as there has been human civilisation. Today, food, at least in the wealthier parts of the world, is accessible to most people. However, there are concerns regarding the market power of major retailers and the availability of affordable food among certain population groups. In this paper, I investigate how well accessibility, the ease with which individuals can reach various destinations, explains food prices in Swedish food stores. I have done this by combining price information on a large number of Swedish food stores from 2010 to 2014 with a state-of-the-art accessibility measure from the Swedish national transport model. I have found a quadratic relationship between accessibility and price, in which prices in the least and most accessible parts of Sweden are 2–3 per cent higher than in the least expensive parts, which are towns and villages around larger cities. The relationship remains significant when adding controls and accessibility is better at explaining price than measures of market structure previously used in the literature.

Robust Coordination Expansion Planning for Active Distribution Network in Deregulated Retail Power Market

During the deregulation of retail power market, multiple stakeholders are gradually involved in distribution network to invest distributed resources and participate in power transactions, bringing great uncertainty to grid operations. This paper proposes a novel robust coordination expansion planning method that considers non-network solutions in a deregulated retail market, including the closed-loop demand response and other controllable strategies. A double-nested game model is constructed to simulate the bi-directional interaction between distribution system operator and stakeholders. Given that this model cannot be solved directly, a tri-layer decomposition algorithm is presented to enable a distributed optimization of the coupled problem. Furthermore, the case study is implemented on an IEEE 33-bus distribution system and an IEEE 123-bus distribution system, which demonstrates the efficiency and practicability of the proposed method and highlights its merits on enhancing flexibility and postponing unnecessary investments.

Investigation of the Determinants of Market Power on Czech Pork Meat Market

An increasing market concentration in food retailing has generated concerns about the market power of retailers towards consumers and input suppliers. This is especially true for the Czech Republic, which has a CR5 in food retailing greater than 50%. Based on different indicators of food chain and pork meat market with respect to four groups of meat products with low and high value added it was analysed whether the evidence of market power in the Czech pork market exists. Analysis based on a New Empirical Industrial Organization model investigated the degree of market power of meat processing industry. The evidence of market power in meat processing industry is rather weak, although has increasing trend in the last year accompanying by growing market concentration ratio. However, the empirical results suggest that market power of retailing exists towards consumers and towards input suppliers (in particular, in the case of meat products with higher value added).

Investigation of the Determinants of Market Power on Czech Pork Meat Market

An increasing market concentration in food retailing has generated concerns about the market power of retailers towards consumers and input suppliers. This is especially true for the Czech Republic, which has a CR5 in food retailing greater than 50%. Based on different indicators of food chain and pork meat market with respect to four groups of meat products with low and high value added it was analysed whether the evidence of market power in the Czech pork market exists. Analysis based on a New Empirical Industrial Organization model investigated the degree of market power of meat processing industry. The evidence of market power in meat processing industry is rather weak, although has increasing trend in the last year accompanying by growing market concentration ratio. However, the empirical results suggest that market power of retailing exists towards consumers and towards input suppliers (in particular, in the case of meat products with higher value added).

The role of retail market power and state regulations in the heterogeneity of farm‐retail price transmission of private label and branded products

AbstractGiven the leading role of private label brands in the fluid milk market, it is of special interest to focus on possible differences in farm‐retail price transmission between private label and branded milk as well as the causes of heterogeneity. This article examines the heterogeneous effects of private label and branded products on price transmission in the fluid milk market using a panel threshold asymmetric error correction model. Results indicate that upward retail‐price adjustment is faster than the downward price adjustment for both private label and branded milk. The speed of adjustment of private label products is significantly faster than branded products in three different price regimes. We further investigate the reasons of heterogeneity in farm‐retail price transmission of private label milk. We find that both retailer market power and state pricing regulations contribute to the heterogeneity in asymmetric price transmission. Higher retailer market power causes retail prices of private label milk to rise faster and to fall slower. The existence of a state pricing regulation slows down the adjustment speed of retail prices of private labels back to the long‐run equilibrium, regardless of whether the retail price is low or high.

Taxation and Market Power in the Legal Marijuana Industry

In 2012 the state of Washington created a legal framework for production and retail sales of marijuana. Ten other U.S. states and Canada have followed. These states hope to generate tax revenue for their state budgets while limiting harms associated with marijuana sales and consumption. We use a unique administrative dataset containing all transactions in the history of the industry in Washington to evaluate the effectiveness of different tax and regulatory policies under consideration by policymakers and study the role of imperfect competition in determining these results. We use both a reduced form sufficient statistic approach and structural methods to show a number of results. First, Washington's strict cap on firm entry has resulted in retailers with substantial market power. This market power has immediate consequences for both state tax revenue and consumer welfare. Second, because these entry restrictions have caused retailers to behave like local monopolists, the state could substantially increase revenue generated from marijuana legalization by acting as the retailer itself, as it did for alcohol sales until 2012, without a large increase in prices. Third, despite having the nation's highest tax rate at 37%, marijuana in Washington is not overtaxed as many policymakers in other states have argued. The high taxes do not result in lower revenue or a substantial black market. Instead Washington is still on the upward sloping portion of the Laffer curve and the amount of revenue generated by a tax increase is significantly larger due to retailer market power than it would be under perfect competition. Our results suggest there is not widely available black market marijuana competing with legal retail sales. Finally, the high excise tax is primarily borne by consumers and not by firms, and there is a large social cost associated with each dollar raised.

Retail Market Power in a Shopping Basket Model of Supermarket Competition

Supermarket retailers typically operate with relatively low margins, suggesting a highly competitive retail environment. However, despite the fact that consumers purchase an entire shopping basket at a time from supermarkets, this evidence is largely based on models of retail competition with single-category purchases. In this paper, we develop and test an empirical model of retail price competition that explicitly accounts for the effect of demand complementarity among items in consumer shopping baskets. Relative to the case where consumers purchase products with independent demands, we demonstrate that equilibrium prices are higher for all items when retailers take demand-complementarity into account. Our findings indicate that non-price strategies intended to encourage complementarity, such as co-merchandising, strategic shelf-positioning, or featuring complementary goods tend to soften price competition, and lead to higher equilibrium prices.

A tale of two Italian cities: brand-level milk demand and price competition

ABSTRACTWe apply the BLP random coefficient logit model demand model to fluid milk sales data from two north-south Italian cities: Turin and Naples. By virtue of their location and socioeconomic differences, these cities provide a natural experiment for contrasting consumer choices and retail market power related to milk physical and marketing characteristics. Results reveal that, regardless of location, consumers negatively value price increases, fat content and ultra-high temperature (UHT) treatment. However, location matters with respect to brand and type of milk purchased. While in Turin (the higher-income region) demand for the leading manufacturers’ brands is the most price inelastic, in Naples consumers have the lowest price elasticities in case of cheaper milk, often small manufacturer or private label brands. Unlike previous studies, we do not find price elasticities for private labels to be consistently lower (or markups to be higher) compared to manufacturer brands, indicating that private labels have reached maturity in these markets. Further, while demand for fresh milk is more price inelastic in Turin, it is more inelastic for UHT milk in Naples. Likewise, markups and Lerner indexes are higher for fresh milk in Turin and for UHT in Naples corresponding to the more inelastic demands under Bertrand price competition.

Investigating price transmission in the Finnish dairy sector: an asymmetric NARDL approach

The nonlinear ARDL model is applied to monthly price data to analyse vertical price transmission among farm and retail markets for a variety of dairy products in Finland. The results support the presence of long-run asymmetry for non-fat and low-fat milk as well as for blue and Emmental cheese; of short-run asymmetry for Edam cheese; and of short- and long-run asymmetry for processed and cottage cheese as well as yoghurt. Furthermore, results indicate the presence of a positive degree of long-run price asymmetry for non-fat milk of about 46%; for low-fat milk of 64%; for blue cheese of 5.2%; for Emmental cheese of 12.4%; for processed cheese of 11.6%; for cottage cheese of 9.9%; and for yoghurt of 8.9%. The positive long-run price transmission asymmetry findings of the present paper can be attributed to the strong market power of the Finnish food retailers, while short-run asymmetric price transmission can be caused, in addition to market power, by factors such as adjustment and menu costs, search costs, inventory management strategies and policy intervention via the milk quotas.

Estimating bilateral market power of processors and retailers in the U.S. beef industry

AbstractThis paper estimates the full bilateral market power of processors and retailers in the U.S. beef industry. Our full bilateral imperfect competition model allows potential market power exertion from all adjacent upstream and downstream markets of processors and retailers. Empirical results show the presence of market power from processors and retailers in both output and input procurement markets of the U.S. beef industry. Estimates of conjectural elasticities and market power indices suggest that processors’ market power exertion is greater than the exertion of retailers’ market power in the U.S. beef industry. Results of the goodness‐of‐fit statistics indicate that flexible frameworks work better than restrictive models in representing the bilateral market structure. Estimates of market power parameters and market power indices are sensitive to the choice of market structure model as well as functional forms of production function. These findings indicate that any erroneous assumptions on market structure and functional form of production function may result in misleading estimates of market power. [EconLit citations: D43, L11, L13, Q13].

Price transmission at the micro-level: what accounts for the heterogeneity?

We use high-frequency scanner data to estimate product-specific price transmission elasticities across product types, between national brands and private labels and across retail chains in the UK. The results provide new insights into the determinants of price transmission including the role of vertical control in the retail chain, the elasticity of retail mark-ups and retailer market power. Using data on 106 orange juice products over 130 weeks for 7 UK retail chains, we highlight significant variation in price transmission by chain and that the characteristics of pricing behaviour and differences in vertical control across are important determinants of price transmission.

Fast Performance Computing Model for Smart Distributed Power Systems

Plug-in Electric Vehicles (PEVs) are becoming the more prominent solution compared to fossil fuels cars technology due to its significant role in Greenhouse Gas (GHG) reduction, flexible storage, and ancillary service provision as a Distributed Generation (DG) resource in Vehicle to Grid (V2G) regulation mode. However, large-scale penetration of PEVs and growing demand of energy intensive Data Centers (DCs) brings undesirable higher load peaks in electricity demand hence, impose supply-demand imbalance and threaten the reliability of wholesale and retail power market. In order to overcome the aforementioned challenges, the proposed research considers smart Distributed Power System (DPS) comprising conventional sources, renewable energy, V2G regulation, and flexible storage energy resources. Moreover, price and incentive based Demand Response (DR) programs are implemented to sustain the balance between net demand and available generating resources in the DPS. In addition, we adapted a novel strategy to implement the computational intensive jobs of the proposed DPS model including incoming load profiles, V2G regulation, battery State of Charge (SOC) indication, and fast computation in decision based automated DR algorithm using Fast Performance Computing resources of DCs. In response, DPS provide economical and stable power to DCs under strict power quality constraints. Finally, the improved results are verified using case study of ISO California integrated with hybrid generation.