UK RETAILER VERTICAL POWER, MARKET COMPETITION AND CONSUMER WELFARE

Abstract

Vertical trading relations between retailers and their suppliers are an important determinant of competition, strategy and performance in a number of sectors in the economy, and thus strongly influence consumer welfare. The balance of vertical power between retailers and manufacturers has changed over the past 20 or 30 years to confer more influence on retailers, and this has had a number of obvious outcomes in terms of retailer influence on product design and advertising, including own‐label goods. Other changes, such as increasingly beneficial terms of trade for large‐scale retailers in some sectors and the deterioration in manufacturer profitability, have led to government enquiry into particular sectors, and demands from some parties for a legislative response to perceived problems. The article suggests that while there is room for improvement in UK retailing performance, the outcomes for consumer welfare of changes in the vertical balance of power in markets are more difficult to assess.

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