Retail Mergers, Buyer Power and Product Variety∗

This paper analyses the impact of retail mergers on product variety. We show that following a merger, a retailer may want to enhance its buyer power vis a vis suppliers by delisting products and committing to a “single-sourcing” purchasing strategy. As we argue, the benefits of such a strategy may be more pronounced in case of cross-border mergers. Moreover, anticipating further concentration in the retail industry, suppliers will strategically choose to produce less differentiated products, which further reduces product variety. If negotiations are efficient, the overall loss in product variety reduces industry profits and, under quite standard assumptions, also consumer surplus and total welfare. With linear tariffs, however, there may be a countervailing effect as the more powerful retailer passes on lower prices to final consumers.