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Journal of Agricultural & Food Industrial Organization

Ed. by Azzam, Azzeddine

1 Issue per year

Buyer Power in U.K. Food Retailing: A 'First-Pass' Test

Tim Lloyd1 / Steve McCorriston2 / Wyn Morgan3 / Anthony Rayner4 / Habtu Weldegebriel5

1University of Nottingham

2University of Exeter

3University of Nottingham

4University of Nottingham

5University of Warwick

Citation Information: Journal of Agricultural & Food Industrial Organization. Volume 7, Issue 1, ISSN (Online) 1542-0485, DOI: 10.2202/1542-0485.1253, May 2009

Publication History

Published Online:
2009-05-25

The potential existence of buyer power in U.K. food retailing has attracted the scrutiny of the U.K.'s anti-trust authorities, culminating in the second of two comprehensive regulatory inquiries in recent years. Such inquiries are authoritative but correspondingly time-consuming and costly. Moreover, detection of buyer power has been dogged by the paucity of reliable evidence of its existence. In this paper, we present a simple theoretical model of oligopsony which delivers quasi-reduced form retailer-producer pricing equations with which the null of perfect competition can be tested using readily available market data. Using a cointegrated vector autoregression, we find empirical results that show the null of perfect competition can be rejected in seven of the nine food products investigated. Though not conclusive on the existence of buyer power, the proposed test offers a means via which the behaviour of the retail-producer price spread is consistent with it. At the very least, it can corroborate the concerns of the anti-trust authorities as to whether buyer power is potentially one source of concern.

Keywords: buyer power; cointegrated VARs; U.K. food industry

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