Monopsony power: Small producers can earn good profits

Small suppliers bargaining with large supermarket chains are not necessarily doomed to earn meagre profits. That is the central finding of research by Carlos Noton and Andrés Elberg, published in the May 2018 issue of the Economic Journal.

Their analysis of wholesale prices paid by major supermarket chains to packaged coffee suppliers in Chile shows that some small manufacturers are able to secure relatively large fractions of the surplus despite their size. The results suggest that the most likely explanation for their success in capturing value is that they provide differentiated products to a small but highly loyal group of customers.