Normally, when we hear that a supermarket is putting the screws on its suppliers it is a good thing for consumers. When supermarkets get better prices for wholesale products, some of those savings will be passed on to consumers!
However, this case of squeezing the wholesaler does not appear as consumer friendly. Progressives are telling wholesalers that there product cannot be “promoted” by other store types at the same type that Progressive is promoting it. If they the wholesaler breaches this “no-clash” agreement, then they are liable for the cost associated with Progressives lowering the price to meet competitors.
Now how could this lead to lower competition? Well the first thing to realise is that this implies that the wholesaler can only “discount” his product at one store type at a time – therefore, reducing competitive pressures on the retail end.
Progressives policy effectively allows Foodstuffs and Progressive to price discriminate between customer types (based on store loyalty or transaction costs) by having rotating promotions. Those who hold little loyalty to a store type will go to the store where the product is on special, while those who were in the habit of going to a certain store type would sometimes pay the higher price. By putting in this form of price discrimination, supermarkets will be able to increase their effective margins, making consumers worse off.
Furthermore, it allows Foodstuffs and Progressives to “pre-commit” to not attacking each other in terms of “specials”. Ultimately, this feels like a way of increasing tacit collusion in the supermarket industry (by removing the choice to deviate – as the wholesalers hands are tied!) – and that is exactly the way that I would complain about it.
Do you guys have any other ideas about how this could be viewed as anti-competitive, or do you think it is pro-competitive in some way?