Vertical Control and Retail Competition: Evidence from Consumer Battery Industry

Résumé

This paper examines the impact of a vertical agreement between a downstream retailer and an upstream manufacturer in the context of the U.S. consumer battery industry, using detailed consumer receipt panel data. Following the agreement between Walmart (the retailer) and Energizer (the manufacturer), Walmart increases the retail prices of Duracell, Energizer’s main competitor, while Energizer increases the wholesale prices charged to other retailers competing with Walmart. We document a shift in Walmart’s sales from Duracell toward Energizer and retail price increases of about 6–7 percent for both brands across major retailers. To interpret these patterns, we estimate a model of consumer demand and retailer–manufacturer bargaining that treats Walmart and Energizer as an integrated party in the post-agreement period. Counterfactual analyses show that Duracell, though not part of the agreement, benefits from higher prices. Moreover, when similar agreements involve smaller retailers, they induce even larger wholesale and retail price increases elsewhere, resulting in greater consumer harm.