Imagine you're shopping online for a new refrigerator. The store—say, Home Depot—sells models from Whirlpool, LG, and Samsung. Then Home Depot launches a new video overview feature that makes complex, high-tech models easier to compare. Suddenly, one brand's products—those with advanced smart features, for example—stand out more to shoppers. And, the retailer's investment doesn't just change what customers see. It can also impact which companies win or lose in supplier negotiations behind the scenes.
That's the kind of ripple effect explored in new research from Nicole Johnson, associate professor of accounting and Robert and Lois Braddock Research Scholar at the University of Oregon's Lundquist College of Business, and her coauthors Michael Kopel at the University of Graz, and Clemens Lankisch-Hartmann and Thomas Pfeiffer at the University of Vienna. Their study, "Investment Incentives and Relative Bargaining Power in a Multi-Product Distribution Channel" recently accepted and published online in the Journal of Marketing Research, looks at how retailers' long-term investments—for instance, new technology platforms, store redesigns, or data systems—affect the balance of power between competing suppliers.
The Power Game Inside Your Cart
In today's retail landscape, giants like Walmart, Amazon, and Costco don't just sell products. They shape markets through strategic investments that boost demand for certain items more than others. Those choices can unintentionally, or strategically, help smaller, weaker suppliers at the expense of stronger ones.
The research team found that when a retailer makes an investment that benefits one supplier's products more than another's, it can change future bargaining leverage. For example, if Walmart upgrades its app in ways that make lesser-known brands easier to discover, it can reduce the negotiating power of big-name suppliers that might otherwise dominate.
"Retailers can actually improve their bargaining position with powerful suppliers by making investments that shift demand toward weaker competitors," Johnson explained. "What matters most isn't always the power of the retailer, but the mix of bargaining power among the suppliers."
Why Relative Power Matters
The study challenges conventional wisdom that a retailer's overall power determines efficiency and profits in the supply chain. Instead, the authors show that it's the balance of power between competing suppliers that drives smart investment decisions, profitability, and even consumer choice.
Among their key findings:
- Retailers don't always benefit from full control. When one supplier dominates, a retailer might over- or underinvest in technology or marketing to rebalance power—moves that can reduce total supply chain profits.
- Stronger suppliers can inadvertently help weaker ones. When one brand gains bargaining power, the retailer may shift investments to make weaker rivals more attractive, leveling the playing field.
- Integration isn't always efficient. When retailers develop their own private-label products, partial vertical integration can sometimes hurt the overall market by distorting incentives and lowering profits.
Implications for Business
For retailers, the research offers a reminder that strategic investments are not neutral. They can reshape the competitive landscape as much as product pricing or contract terms. For suppliers, it highlights that even rivals' strength can affect their own success.
"Understanding the influence of relative supplier bargaining power on retailers' incentives is critical," said Johnson. "It influences where retailers put their money, how profits are shared across supply chains, and ultimately what consumers find in stores."
—Jim Engelhardt, Lundquist College Communications