Buyer Power and Information Disclosure

We study how buyer power affects a producer's incentives to share information with retailers. First, we develop a theoretical model suggesting that increasing buyer power discourages information sharing between the producer and retailers. Then, we test this prediction by adopting the idea that recommended retail prices (RPRs) serve as an information-sharing device between manufacturers and retailers. Using hand-collected information on RPRs for certain grocery products in Korea, we find that the more the sales of a product rely on powerful retailers, the less likely the manufacturer is to recommend a price. Given that revealing the information increases industry profits, our analysis highlights potential inefficiencies due to the rise of powerful retailers.