The Economics of Retailing Formats : Competition versus Bargaining

We set up a merger game between retailing stores to study the incentives of independent stores to form a big store when some consumers have preferences for one-stop shopping. Such one-stop shopping creates complementarity between products, leading in turn to lower prices after a big store is formed but may also lead to an improvement in the bargaining position vis-à-vis producers through the creation of an inside option that small stores don't have. We find that big stores will not be formed when the stores' ex-ante bargaining power vis-a-vis producers is high.Otherwise, an asymmetric situation occurs with only one big store created when one-stop shoppers are abundant