(Oct. 2) The market power of retailers allows them to buy low from suppliers and sell high to consumers, according to recent studies published by the U.S. Department of Agriculture Economic Research Service.

The three studies, published Sept. 22, on the USDA’s ERS Web site, were prompted by concern by some in the produce industry about retail consolidation and industry practices such as slotting fees, according to Arizona State University economist Paul Patterson, co-author of one of the reports.

The results of the studies showed no coordinated effort by retailers to exert market power, but they did show retailers can and do wield power over both supplier and consumer prices.

“In terms of looking at the sectors, we always kind of expected some market power of retailers over consumers,” he said, noting that retail store location is a big determinant in shopping habits.
Consumers don’t have the time or money to shop at many different stores.

The studies also showed retailers had buying market power — the ability to push supplier prices below the competitive level, he said.

One interesting wrinkle in the results showed that highly perishable crops, such as lettuce, differed from storage crops such as apples in how retail market power was exercised.

For example, Patterson said retail market power increased when volume of lettuce was abundant.

On the other hand, with commodities like apples, oranges and grapefruit — commodities that can be stored, at least to a certain extent — Patterson said the study showed that market power of retailers decreased during times of abundant supply.

“When retailers went on promotion, they wanted to make sure they have efficient suppliers and that may be the time they would be willing to pay a little better price,” he said.

The response to the market power by retailers has been a consolidation on the supply side of the industry, and Patterson speculated that will continue.

“There are marketing alliances among shippers, and a lot of economists recommend cooperatives as a countervailing force against market power,” he said.

Cooperatives can take a variety of forms, ranging from marketing to information sharing.