The name is absent

complex. This literature emphasize the importance of two key analytical features: an
approach based on bargaining theory and the assumption of asymmetric firms. One
problem is that the works are not well designed to fully explore the specific nature of
buyer power in the vertical relationships between food manufacturers and retailers. As
a consequence, they do not providee an appropriate framework to analyse the specific
mechanisms at work in a competitive environment characterized by vertical
competition.

In whar follows, we develop a framework explicitly designed to capture the main
mechanisms operating in the context of vertical relationships between manufacturers
and retailers, after the entry and qualitative development of store brands.

3. A two- stage framework with delisting

In this section, we investigate how store brands leading to higher buyer power and
vertical competitive pressure may indeed not reduce upstream incentives to product
quality and innovation. A key hypothesis in our framework is that manufacturer
brands are asymmetric. Let us imagine a world of asymmetric firms, with different
resources and capabilities to develop new products and brand policies. But it may also
be useful, as we will see, to assume that firms have portfolios of heterogeneous brands
in relation to their strength, for example, in terms of brand equity, loyalty, innovative
content and degree of differentiation. Given the nature of our framework, we do not
go into details of specific non- price strategies. We consider all non- price decisions
(product innovation and differentiation) which can affect the strength of a brand and
we measure this strength through the notion of brand loyalty.

3.1 The Steiner’s curve

More than two decades ago, Robert Steiner developed a dual- stage paradigm to
examine vertical relationships between manufacturers and retailers in consumer goods
industries to take into account that, contrary to the implicit assumption of what he
called the single- stage approach, which was then and in some way still is the standard
approach in economics textbooks, manufacturers do not sell direcly to final
consumers and the retail industry is not perfectly competitive. ⁵

A key prediction of Steiner’ s approach is the existence of an empirical regularity
between the retailer’ s margin - namely the difference between a brand’s retail price
and its factory price - and the strength of a brand. This margin is not fixed and equal
among competing brands but reveals a negative association with brand strength. The
stronger the brand, the lower is the retailer's optimal markup over factory price. ⁶

⁵ Economic research has often oversimplified the vertical relationships between
manufacturers and retailers by assuming that retailers are neutral and unable to affect
upstream behavior. Hence, the importance of Steiner’ s approach. For a recent review
and assessment of Steiner’s approach, see Gundlach and Foer (2004) as well as the
papers collected in the Winter 2004 issue of the Antitrust Bulletin.

⁶ Alfred Marshall (1920) had already pointed out this relationship. For a review of the
empirical evidence supporting the existence of a significant inverse association
between brand advertising and retail margins, see also Farris and Albion (1980) and

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