Product Differentiation Strategy Of Upstream Enterprise The Role Of Retailer Countervailing Power

As one-stop shopping mall, chain supermarket and large retailers play more and more important roles in our daily life recent years, consumption patterns and vertical relationship of the traditional retail industry chain have been changed huge by countervailing power that emerged because of the increasing of retail industry concentration. So academia and policy-making departments have paid great attention to this phenomenon. On theoretical aspect, the traditional vertical restraints theories have been extended because of the replacement of the chain control relationship, and buyer power theory arose. In policy side, many antitrust competition policies have appeared to regulate retailer countervailing power. This paper is based on the effect of countervailing power, considered the upstream producers differentiation strategies to fight against the downstream retailers market power, when downstream retailers countervailing power and competition are increasing. This study is the basic problem of the vertical relationships of industrial organization theory. The results can be used to explain strategic behavior and theoretical basis for industry competition policy.The paper contains five parts:introduction, literature review, the impact of single retailer countervailing power on upstream manufacturers’ product differentiation strategies, when upstream is monopoly, downstream is duopoly and when upstream is monopoly, downstream is multi-oligopoly, and the last part is conclusion. Specifically, this paper analyzes the choice of upstream production strategy to increase its market power, and the effect of countervailing power on contracts, waterbed effect, and consumer welfare, with increasing countervailing power and changing competition. The article’s mainly researches are summarized as follows:Firstly, according to vertical structure of M-O,I construct an incomplete information dynamic game model based on one retailer with countervailing power and this retailer cooperates with supplier, to analyze the effect of countervailing power on upstream supplier’s product differentiation strategies, contracts and consumer utility.Secondly, I compare the upstream production strategy in two cases that downstream is symmetry and asymmetric, and compare this results with the third chapter, to analyze the impact of countervailing power on upstream supplier’s product differentiation strategies, contracts and consumer utility. This study is based on the previous studies that the retailer’s countervailing power can affect industrial structure.The article introduces the substitution of downstream competition and countervailing power at the same time, i.e., that I analyze the substitution effect with changing countervailing power and changing competition. Then based on this, I consider the effect of competition on countervailing power.Finally, I analyze the effect of countervailing power on waterbed effect when upstream choose differentiation strategies, and when I put forward relative waterbed effect. This paper enriched countervailing power theory, and explored the governance of countervailing power on double marginalization through model, based on the existed analysis.