Retailer Concentration and Product Innovation in Food Manufacturing

The increasing concentration of retailing in many countries (particularly in Europe) is a cause for concern for competition authorities. In a formal model, we argue that retailer market power influences upstream firms' incentives to introduce new products. On the basis of a survey of German food manufacturing firms, the results of a negative binomial regression model suggest a detrimental effect of retailer market power on product innovation. This effect is mitigated if manufacturing firms also have some market power (countervailing power). Innovations are positively related to the firms' market share.