LIU Xiangdong，etc：Research on Profit-making Mode of Chinese Retailing Industry——A Gambling Equilibrium Analysis Based on Demand Uncertainty

Abstract：Chinese retailers generally adapt an integrated profit-making mode of “front-ground profit & back-ground profit”, which is called “slotting allowance mode”.Nevertheless, no final conclusion has yet been reached on the formation mechanism of this mode.Through field research on retail enterprises, we find that the “back-ground profit” is a means which retailers use to avoid selling risk, and this profit mode is a rational choice of retailers under the condition of selling risk, market power and operation ability.This paper builds a gambling model to quantify market power, operation ability and demand uncertainty of retailers, and investigates formation mechanism of different profit modes.The equilibrium analysis shows that if a retailer's market power is strong enough, and it faces enough sales' uncertainty, then slotting allowance will be a constant operation mode; otherwise, slotting allowance is just an impermanent choice of the retailer in a process of operation ability accumulation.With the loss of market power and the enhancement of operation ability under the impact of Internet economy, Chinese retail enterprises will gradually go back to traditional profit-making mode.

Key words： Profit-making Mode    Back-ground Profit    Uncertainty    Market Power    Operation Ability

source:Finance & Trade Economics ,No.9,2015