Are Manufacturers Competing through or with Supermarkets? A Theoretical Investigation

We study a model with product differentiation by manufacturers and spatial differentiation by supermarkets where the customers visit only one shop and the supermarkets carry both goods. Under fixed fee pricing by the manufacturers the intensity of interbrand competition increases with the degree of differentiation between the supermarkets. When the supermarkets are more and more spatially differentiated the struggle between manufacturers and supermarkets dominates the competition between the manufacturers and results in lower wholesale prices and manufacturers profits.