Are supermarkets squeezing small suppliers? evidence from negotiated wholesale prices

Conventional wisdom is that big-box retailers squeeze the profits of small suppliers. Underlying this belief is the assumption that relative market size is the primary source of bargaining leverage. Using actual wholesale prices, we study profit-sharing between large retailers and suppliers of different size. We find that the median supplier earns 42% of the channel surplus, and that some very small suppliers attain a share of the channel surplus close to that of the largest supplier (about 68%). Using a Nash bargaining model, we find that small suppliers can gain bargaining leverage by maintaining a base of loyal customers.We thank Gregory S. Crawford for his encouragement and insightful comments. We also thank Victor Aguirregabiria, Ozlem Bedre, Meghan Busse, Jean-Pierre Dub € e, David Genesove, Margaret Kyle, Rafael Moner-Colonques, Ariel Pakes, Michelle Sovinsky, Michael Waterson, Ali Yurukoglu and the seminar participants at the NBER IO Winter Meetings 2012, CEPR-JIE Conference on Applied IO 2012, Hebrew University, Toulouse School of Economics, Universidad Diego Portales, Universidad de Chile, the University of Warwick and University of Zurich. Noton acknowledges financial support from the Institute for Research in Market Imperfections and Public Policy, ICM IS130002, Ministerio de Economıa. An earlier version of this article circulated under the title ‘Revealing Bargaining Power through Actual Wholesale Prices’