Abstract
Contemporary domination of chain-stores in retailing is modeled, perceiving a monopolistic retailer as a market leader. A myriad of her suppliers compete in a monopolistic competitive sector, displaying quadratic consumers’ preferences for a differentiated good. The leader announces her markup before the suppliers choose their prices/quantities. She may restrict the range of suppliers or allow for free entry. Then, a market distortion, stemming from double marginalization and excessive variety would be softened whenever the government allows the retailer to apply an entrance fee to the suppliers, or/and per-quantity sales subsidies (doing the opposite to usual Russian regulation).
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Notes
- 1.
We find the equilibrium in three steps. First we derive the consumer’s demand (2) to find \(q(p(\cdot ),r,N)\), then we solve the manufacturer’s problem to find the pricing rule p(r, N) as in (3) and finally, plugging q(p(r, N), r, N) and p(r, N) into the retailer’s problem (7)–(8), we solve it determining the best choice (r, N).
- 2.
A negative impact on the consumer’s satisfaction from other varieties (through parameter \(\gamma \)) could be taken into account as “a cost of launching a new firm,” but with a continuum of firms this impact is negligible.
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Acknowledgments
The study has been funded by the Russian Academic Excellence Project ’5-100’. We gratefully acknowledge partial financing this project by grant SSD SECS-S/06, 571/2014 from Department of Management of University Ca’ Foscari Venezia, by grants 15-06-05666, 16-01-00108 and 16-06-00101 from RFBR. Also we acknowledge to many our colleagues for useful comments and discussions.
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Bykadorov, I., Ellero, A., Funari, S., Kokovin, S., Pudova, M. (2016). Chain Store Against Manufacturers: Regulation Can Mitigate Market Distortion. In: Kochetov, Y., Khachay, M., Beresnev, V., Nurminski, E., Pardalos, P. (eds) Discrete Optimization and Operations Research. DOOR 2016. Lecture Notes in Computer Science(), vol 9869. Springer, Cham. https://doi.org/10.1007/978-3-319-44914-2_38
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