Details

Autor(en) / Beteiligte

• Viswanathan, Madhu

Titel

Economic Impact of Category Captaincy: An Examination of Assortments and Prices

Ort / Verlag

ProQuest Dissertations & Theses

Erscheinungsjahr

2012

Link zum Volltext

• ProQuest

Quelle

ProQuest Dissertations & Theses A&I

Beschreibungen/Notizen

• Vertical arrangements like "Category Captaincy" and "Slotting fees" involve transactions on both price and non-price aspects (such as shelf-space allocations and assortments) and are becoming increasingly popular in retail markets. Given the financial scope and magnitude of the retail sector, such arrangements can have a disproportionately large impact on consumers and on the competitive landscape. Not surprisingly, they have been the subject of much scrutiny from industry practitioners and public policy experts (Desrochers et al. 2003). However, empirical work concerning these practices has been hampered by i) the difficulty of obtaining detailed data on these arrangements, and ii) the difficulty in developing models that can examine both price and non-price aspects of these arrangements, while accounting for horizontal competition between manufacturers and vertical interactions between manufacturers and retailers. In this essay, I attempt to address the challenges mentioned above in the context of Category Captaincy, an arrangement where the retailer works exclusively with a manufacturer to manage both the manufacturer's and his rivals' products, and its impact on assortments and prices. I develop an empirical model of demand and supply to model assortment decisions under category captaincy. I use a unique dataset from the frozen pizza category that contains information on category captaincy across 20 retail chains and 5 local markets in the United States, in addition to retail movement data. I discuss three potential welfare effects that occur under category captaincy. An efficiency effect occurs if captaincy lowers upfront cost per SKU compared to the retailer managing the category. A market-coverage effect occurs if captaincy leads to the addition of SKUs that a retailer would not have otherwise carried. Finally, a substitution effect occurs if captaincy leads to a rival's SKUs being dropped from the assortment carried. Together, these effects determine the products available to the consumers under captaincy arrangements. My estimates point to an efficiency effect; on average, captaincy leads to savings of $2400 per SKU per quarter for a retail chain. Further, I document evidence for market-coverage and substitution effects showing that captaincy leads to addition and/or deletion of SKUs that favor category captains and retailers at the expense of rival manufacturers. Interestingly, captaincy can also lead to welfare gains for consumers, which argues against a purely negative view of captaincy by policy makers.