Munich Personal RePEc Archive

Buyer Power and Functional Competition for Innovation

Inderst, Roman and Jakubovic, Zlata and Jovanovic, Dragan (2015): Buyer Power and Functional Competition for Innovation.

[img]
Preview
PDF
MPRA_paper_61214.pdf

Download (324kB) | Preview

Abstract

Our analysis starts from the observation that with progressive consolidation in retailing and the spread of private labels, retailers increasingly take over functions in the vertical chain. Focusing on innovation, we isolate various reasons for why when a large retailer grows in size, this can lead to an inefficient shift of innovation activity away from manufacturers and to the large retailer. One rationale for this is the retailer's control of access to consumers, which gives rise to a rent-appropriation motive for innovation, next to a hold-up problem. With retail competition, through crowding out the manufacturer's innovative activity, a large retailer obtains a competitive advantage vis-à-vis smaller retailers. We further analyze when inefficiencies are aggravated in case a large retailer's presence threatens the manufacturer with imitation of his innovations.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.