The Quasi-Judicial Role of Large Retailers: An Efficiency Hypothesis of their Relation with Suppliers

The paper explores an efficiency hypothesis regarding the contractual process between large retailers, such as Wal-Mart and Carrefour, and their suppliers. The empirical evidence presented supports the idea that large retailers play a quasi-judicial role, acting as "courts of first instance" in their relationships with suppliers. In this role, large retailers adjust the terms of trade to on-going changes and sanction performance failures, sometimes delaying payments. A potential abuse of their position is limited by the need for re-contracting and preserving their reputations. Suppliers renew their confidence in their retailers on a yearly basis, through writing new contracts. This renovation contradicts the alternative hypothesis that suppliers are expropriated by large retailers as a consequence of specific investments. Reprinted in E. Brousseau and J.-M. Glachant (eds.), The Economics of Contracts: Theories and Applications, Cambridge University Press, Cambridge, 2002, Ch. 19, 337-57.