Channel Coordination When Retailers Compete

Abstract

This paper explores channel coordination by a manufacturer that sells through competing retailers and that treats these retailers equally, as required by the Robinson-Patman Act. The authors show that, in general, there exists no single two-part tariff with a constant per-unit charge that will duplicate the behavioral results (i.e., prices, quantities, and channel profits) that are obtained by a vertically integrated system; that is, the channel cannot be coordinated except in the trivial cases of identical or noncompeting retailers. However, an appropriately specified quantity-discount schedule will enable the channel to earn the same profits generated by a vertically integrated system. Conditions are derived under which a manufacturer will prefer to offer various two-part tariffs with constant per-unit charges instead of the channel-coordinating quantity-discount schedule. The authors also establish the existence of a menu of two-part tariffs that mimics all results of a vertically integrated system. However, only under stringent conditions will retailers select the appropriate tariff from the menu. When these conditions are not satisfied, the channel is worse off than in the case of a single, second-best tariff. It is also demonstrated that under a wide range of parametric values the manufacturer will prefer to offer the second-best two-part tariff rather than a menu of two-part tariffs that could maximize channel profits.channels of distribution, pricing research, game theory

Channel coordination through subsidy contract design in the mobile phone industry

“…Although the assumption of a simple demand function has its limitations, this linear inverse demand function has been often used in operations management (de Mesnard, 2009 and2011;Shin and Tunca, 2010;Shang et al 2015) as well as marketing research (Ingene et al, 1995;Padmanabhan et al, 1997).…”

“…According to Jeuland and Shugan (1983), channel coordination was defined as the 6 setting of all manufacturer and retailer-related decisions at the levels that would maximise total channel profits. The literature on supply chain coordination is rich including the studies on coordinating manufacturing supply chains (Jeuland and Shugan 1983;Ingene and Parry 1995;Weng 1995;Iyer 1998;Tsay Agrawal 2004;Raju and Zhang 2005;Cai 2010) and the supply chain scenarios where service is considered (Ernst and Cohen 1992;Tsay and Arrawal 2000;Boyaci and Gallego 2004;Li et al 2011;Chen and Shen 2012;and Liu et al 2013). …”

“…Different coordination mechanisms including quantity discount (Jeuland and Shugan 1983;Weng 1995;Raju and Zhang 2005), two-part tariff pricing policies (Ingene and Parry 1995;Raju and Zhang 2005;Swami and Shah 2013), pricing discount (Li et al 2011), revenue sharing (Giannoccaro and Pontrandolfo 2004;Cachon and Lariviere 2005;Xiao et al 2011;Zhou and Wang 2012), and option contracts (Zhao et al 2010;Chen and Shen 2012) have been discussed as alternative mechanisms to coordinate different supply chain scenarios.…”

Pricing Decision in a Two-Echelon Supply Chain with Competing Retailers Under Uncertain Environment

“…Most of these researches on the pricing competition problem focus on the following four structures: monopoly common retailer structure [6][7][8], chain-to-chain structure [4,9,10], dual channel structure [11][12][13][14], and monopoly common manufacturer structure, which is studied in this paper. The research on the monopoly common manufacturer structure was initiated by Ingene and Parry [15], considering a coordination problem in a supply chain where a manufacturer sells its products through competing retailers. Ingene and Parry [16] demonstrated that the manufacturer can generally obtain more profits by setting a unique two-part tariff wholesale pricing policy.…”

The Length of Product Line in Distribution Channels

“…Because of the well-known problem of double marginalization, a decentralized channel often results in demand recession, which leads to lower firm profits and social welfare. A good deal of research focuses on how results in a decentralized channel can be restored to those in a centralized channel through quantity discounts or two-part tariffs (Jeuland and Shugan 1983, Moorthy 1987, Ingene and Parry 1995, Raju and Zhang 2005, franchising and contracting (Lal 1990, Iyer 1998, pull promotion (Gerstner and Hess 1995), bargaining (Iyer andVillas-Boas 2003, Dukes et al 2006), trade promotions and forward buying (Cui et al 2008, Desai et al 2010, or channel members' concerns of fairness (Cui et al 2007).…”