Rules on Retailer-Supplier Relationships in the Competition Policy of the Russian Federation: How and Why Misunderstanding Economics Threatens the Competitiveness of the Sector
Svetlana Avdasheva, Andrey Shastitko, Jul 27, 2012
The Law 'On Trade,' adopted in the Russian Federation at the end of 2009, introduced a set of rules that regulate the terms of contracts between food suppliers and retail chains. The legal requirements are very different to any regulations employed in other countries (including the Grocery Supply Code of Practice but, at the same time, they use many concepts developed by economics and expressed both in competition policy and antitrust legislation. The new rules are being actively enforced by the Russian competition agency and provide a significant impact on contracting practices in retailing. At the same time results of many surveys as well as expert estimates show that the proclaimed goal of the law-that is, the redistribution of surplus in the supplier-retailer relationship in favor of the supplier-has not been achieved.
Without discussing in detail the possibility of achieving the desired state of affairs in the contractual relationships in retailing we concentrate on one of the possible explanations for market participants' dissatisfaction with the results of the law's implementation. The law's requirements are based on assuming that terms and conditions common in retailer-supplier contracts, such as discounts, slotting allowances, and marketing fees, as well as variations in contract terms between suppliers, represent an abuse of bargaining power by retail chains that should be illegal. We develop a theoretical framework to show how restrictions on contract terms not only generate an excessive administrative burden on market participants but also undermine a successful cooperation between suppliers and retailers.