Agreements between manufacturers and retailers can affect competition across brands and stores. This column documents retail price patterns in the US consumer battery industry and uses a model estimated from purchase data to explore two potential mechanisms: changes in downstream retail pricing and changes in upstream wholesale contracting. Counterfactual simulations illustrate how these mechanisms could jointly weaken competition. In the scenarios examined, the wholesale channel generates the larger consumer welfare loss. The findings highlight the importance of considering both channels when evaluating the potential effects of vertical agreements.
Recent litigation involving the retailer Walmart and the battery manufacturer Energizer raises a broader policy question about agreements between suppliers and retailers. The plaintiffs allege that the companies sought to raise the wholesale prices charged to Walmart’s rivals and prevent other retailers from undercutting Walmart’s retail prices (US District Court for the Northern District of California 2026). These allegations raise a broader economic question: how might competition be affected by vertical arrangements that influence both retail pricing incentives and the wholesale costs faced by competing retailers?
A manufacturer supplies products to several competing stores, while each store carries products from competing manufacturers. These relationships mean that changes in one firm’s pricing incentives or wholesale terms can have effects beyond the firms directly involved. Assessing the potential consequences of vertical restraints requires considering how the market would operate under alternative arrangements, including the responses of competing manufacturers and retailers.
Earlier research helps explain why these interactions matter. Salop and Scheffman (1983) showed how firms can profit by raising rivals’ costs. Luco and Marshall (2020), studying soft drinks, found that vertical integration could lower prices for some products while raising prices for others sold by the integrated firm. Herweg and Müller (2015) explain how the effects of wholesale price discrimination depend on contract structures and the information available to firms. These studies highlight how vertical relationships can affect pricing incentives and competition across products and retailers.
To make the mechanisms concrete, consider two battery brands – Energizer and its competitor Duracell – sold by Walmart and competing retailers. Suppose Walmart and Energizer take each other’s profits into account when setting prices. Walmart would then have an incentive to raise Duracell’s price and steer customers towards Energizer. Competition between brands could weaken even though both remain on the shelf.
The same arrangement could also affect wholesale pricing. Energizer may have less incentive to offer attractive wholesale terms to retailers that compete with Walmart. Higher wholesale prices could lead to higher retail prices at those stores, reducing the competitive pressure on Walmart. The two mechanisms therefore affect different dimensions of competition: one changes pricing incentives within Walmart, while the other raises costs for competing retailers.
Together, these mechanisms connect competition between brands with competition between retailers. Related research also highlights how wholesale contracts can influence competition between distribution channels (Jullien et al. 2022).
In a recent paper (Li and Tsai 2026), we use household purchase receipts from the US consumer battery industry. The data record which products consumers buy, where they buy them, and what they pay. We first use these data to document retail price patterns across brands and retailers.
Figures 1a and 1b show quarterly retail price indices for Energizer and Duracell at Walmart and competing retailers, with each series normalised to one in 2019Q1. An index of 1.10 indicates that the price index is 10% higher than its 2019Q1 level. These indices capture changes over time within each series rather than differences in actual price levels across brands or retailers.
Figure 1 Retail price changes by brand at Walmart and other retailers
a) Walmart
b) Other retailers
At Walmart, Duracell’s price rises sharply in 2019Q2 and subsequently remains above its baseline (Figure 1a). Energizer’s price also rises, but by less. By 2021Q3, Duracell’s price is approximately 8.5% above its 2019Q1 level, compared with about 6% for Energizer. Duracell’s larger price increase could make Energizer relatively more attractive at Walmart, even though both brands become more expensive.
Outside Walmart, the pattern differs (Figure 1b). Both brands’ prices increase after 2019Q1, but from 2020 onwards, Energizer’s increase is consistently larger than Duracell’s. By 2021Q3, Energizer’s price is approximately 15% above its baseline, compared with about 8.5% for Duracell. The Dollar Tree comparison series remains flat over the same period.
Figure 2 shows that price changes also vary considerably across retailers. Dollar General records the largest sustained increase, with its index approximately 25% above the baseline by 2021Q3. Prices also rise at Walmart, Costco, Target, and the retailers grouped as “Others”, although by different amounts. Amazon shows no sustained increase, while Dollar Tree’s index remains at one.
Figure 2 Retail price changes across retailers
These patterns are consistent with the two potential mechanisms described above. At Walmart, a larger increase in Duracell’s price could steer purchases towards Energizer. At competing retailers, less favourable wholesale terms for Energizer could lead to larger increases in its retail price. Together, these mechanisms illustrate how vertical agreements could affect both competition between brands within a store and competition between stores selling the same brand.
The price patterns alone do not establish whether the alleged agreement took place or caused the observed changes, nor do they identify the contribution of each mechanism. They motivate our model, which allows us to examine the two channels separately and quantify their potential consequences for consumers.
To examine the potential consumer welfare implications of the two mechanisms, we use household purchase data to estimate demand and infer costs, providing the basis for simulations of competition between manufacturers and retailers (Li and Tsai 2026). The simulations allow consumers to switch between brands and retailers while holding total battery purchases fixed.
We estimate the model using data from before the alleged conduct, which we call the pre-period. The benchmark assumes that the hypothesised agreement is absent. Manufacturers bargain with retailers over wholesale terms, and retailers choose prices across the brands they carry. Firms can have market power in this benchmark, but each maximises its own profits. Consumer substitution between brands and stores determines how strongly the firms constrain one another.
Starting from this benchmark, we use retail prices observed after the alleged conduct began, together with the corresponding wholesale prices inferred in Li and Tsai (2026), to estimate brand- and retailer-specific price changes and apply them to the pre-period market. This constructs a hypothetical agreement scenario under the assumption that the post-period price changes reflect the hypothesised agreement. The exercise therefore asks what the welfare consequences would be under this interpretation, rather than establishing that the agreement caused the observed price changes.
To examine the two channels separately, we hold either Walmart’s Duracell retail prices or Energizer’s wholesale prices charged to competing retailers at their scenario levels, allowing the remaining prices and wholesale terms to adjust in the model.
In these simulations, both mechanisms generate consumer welfare losses. The wholesale channel generates approximately 2.2 to 3.4 times the consumer welfare loss of the retail channel across the specifications considered. Combining both mechanisms generates larger losses than either alone.
First, different types of vertical restraints may be implemented together and interact with one another. Retail pricing incentives and wholesale terms can jointly influence competition across brands and retailers. Our simulations suggest that considering these mechanisms in isolation may overlook their combined effects on consumers.
Second, wholesale restraints may have important consequences beyond the firms directly involved. By raising the costs of competing retailers, changes in wholesale terms can affect retail prices throughout the market. In our simulations, the wholesale channel generates larger consumer welfare losses than the retail channel. This highlights the importance of looking beyond observed retail prices when assessing potential competitive effects (see also Gado et al. 2024).
Third, the effects on competing firms can be less straightforward. Our simulations suggest that Walmart and Energizer earn higher joint profits, while competing retailers’ profits fall in aggregate. Duracell may also benefit through improved wholesale terms with other retailers, despite losing sales at Walmart. This illustrates that even firms not directly involved in an arrangement may benefit from weaker competition, while consumers are worse off.
These considerations also matter for remedies. If potential harm arises through both retail and wholesale mechanisms, addressing only one may leave the other operating. Evaluating remedies requires accounting for how firms would adjust their prices and contracts, as well as possible efficiencies generated by vertical arrangements.
Source : VOXeu
Recent disruptions to global oil markets, from Russia’s invasion of Ukraine to the war in…
The importance of private equity for euro area firms is increasing, with annual growth rates…
Debates about tariff evasion have focused on Chinese goods entering the US. This column examines…
More than half of the European Union’s natural gas imports are burned to keep buildings…
There are technical, political and behavioural responses to rogue AI, but risks cannot be fully…
Spending on public pensions through Social Security and on elderly healthcare through Medicare accounted for…