Buyer Power and Information Sharing

Buyer Power and Information Sharing

We examine how buyer power affects the incentives of producers to share information with retailers. First, we develop a theoretical model suggesting that increasing buyer power will discourage information sharing between producers and retailers. Second, we test this prediction by adopting the idea that recommended retail prices (RPRs) serve as an information-sharing device between manufacturers and retailers. Using manually collected information on RPRs for certain grocery products in Korea, we find that the more the sales of a product rely on powerful retailers, the less likely manufacturers will recommend prices. As revealing information can increase industry profits, our analysis highlights potential inefficiencies from the rise of powerful retailers.