Paper #445

Title:

The quasi-judicial role of large retailers: An efficiency hypothesis of their relation with suppliers

Author:

Benito Arruñada

Date:

January 2000

Abstract:

The paper explores an efficiency hypothesis regarding the contractual process between large retailers, such as Wal-Mart and Carrefour, and their suppliers. The empirical evidence presented supports the idea that large retailers play a quasi-judicial role, acting as "courts of first instance" in their relationships with suppliers. In this role, large retailers adjust the terms of trade to on-going changes and sanction performance failures, sometimes delaying payments. A potential abuse of their position is limited by the need for re-contracting and preserving their reputations. Suppliers renew their confidence in their retailers on a yearly basis, through writing new contracts. This renovation contradicts the alternative hypothesis that suppliers are expropriated by large retailers as a consequence of specific investments.

Keywords:

Retailing, distribution, contracts, transaction costs, self-enforcement

JEL codes:

L14, L22, L81, K12, M31

Area of Research:

Business Economics and Industrial Organization

Published in:

Revue d'Economie Industrielle, 92, 2nd and 3rd trimesters, (2000), pp. 277-96. Reprinted in E. Brousseau and J.-M. Glachant (eds.), The Economics of Contracts: Theories and Applications, Cambridge University Press, Cambridge, 2002, pp. 337-57

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