Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Acknowledgments
- Part I Introduction
- Part II Contracts, organizations, and institutions
- Part III Law and economics
- Part IV Theoretical developments: where do we stand?
- Part V Testing contract theories
- Part VI Applied issues: contributions to industrial organization
- 18 Residual claims and self-enforcement as incentive mechanisms in franchise contracts: substitutes or complements?
- 19 The quasi-judicial role of large retailers: an efficiency hypothesis of their relation with suppliers
- 20 Interconnection agreements in telecommunications networks: from strategic behaviors to property rights
- 21 Licensing in the chemical industry
- Part VII Policy issues: anti-trust and regulation of public utilities
- Bibliography
- Index of names
- Subject index
19 - The quasi-judicial role of large retailers: an efficiency hypothesis of their relation with suppliers
Published online by Cambridge University Press: 16 January 2010
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Acknowledgments
- Part I Introduction
- Part II Contracts, organizations, and institutions
- Part III Law and economics
- Part IV Theoretical developments: where do we stand?
- Part V Testing contract theories
- Part VI Applied issues: contributions to industrial organization
- 18 Residual claims and self-enforcement as incentive mechanisms in franchise contracts: substitutes or complements?
- 19 The quasi-judicial role of large retailers: an efficiency hypothesis of their relation with suppliers
- 20 Interconnection agreements in telecommunications networks: from strategic behaviors to property rights
- 21 Licensing in the chemical industry
- Part VII Policy issues: anti-trust and regulation of public utilities
- Bibliography
- Index of names
- Subject index
Summary
Introduction
The problem
In recent years, public discussion concerning large retailers and their suppliers has been growing in intensity. It is often claimed that large retailers are endowed with overwhelming bargaining power and that they abuse this power in their relations with suppliers. New regulations have already been introduced and new regulatory initiatives are often proposed. This work formulates and tests an alternative hypothesis, according to which large retailers efficiently perform a function similar to that of a court of first instance, that is, they act as second-party enforcers in their relationships with suppliers.
The empirical analysis is consistent with the argument that, in order to perform this function, large retailers exercise a set of implicit and explicit rights to “complete” or fill the gaps in the contract, to evaluate their own and the other party's performance and to impose due sanctions. Safeguards against opportunistic behavior in the performance of these quasi-judicial functions follow directly from the retailers' own interest in maintaining their reputation and the relationship with the suppliers, and in continuing to perform the double role of judge and interested party. It is rarely optimal, however, to eliminate opportunism completely. In retailing, failures in safeguards arise especially when the retailer's time horizon is unexpectedly shortened or his decentralized decisions are imperfectly controlled. Regarding these residual and potentially efficient distortions, it is claimed that regulation could hardly provide better incentives than market competition.
The chapter pays special attention to the most problematical aspects of the relationship between suppliers and retailers: the duration of the payment period, payment delays, and the revision of the clauses before the end of the contract term.
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- Chapter
- Information
- The Economics of ContractsTheories and Applications, pp. 337 - 357Publisher: Cambridge University PressPrint publication year: 2002
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