Are supermarkets squeezing small suppliers? evidence from negotiated wholesale prices

Abstract

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.