The retail counter-revolution

Economist C.P. Chandrasekhar in The Hindu:

The power of these chains has been amply illustrated in other contexts, where they have been in operation. With deep pockets and international sourcing capabilities, they exploit economies in procurement, storage and distribution to outcompete and displace domestic intermediaries in the supply chain. This occurs not in one or a few centres, since each retail chain tends to establish procurement, warehousing and distribution facilities across regions and cities. Once the smaller middlemen are displaced, we have a few large firms and their agents dealing with a multitude of small, medium and relatively large producers on the one side, and a mass of consumers, on the other.

The relationship with producers is that of an “oligopsony,” with a few buyers and a large number of sellers. With consumers, it is one of an “oligopoly” with few sellers and a large number of buyers. Structurally, this provides the basis for an increase in margins at the expense of prices paid to producers or charged to consumers. The new “middlemen” appropriate these higher margins. That a part of the margin may be shared with the producer or consumer to increase retail volumes and market shares does not take away from the fact that the distribution of power within the supply chain benefits the large intermediary. In the medium term, it is the dominant position of these large players that would influence the size and direction of margins. More:

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