Strategic Decentralization and Channel Coordination

Desai, Preyas S.; Koenigsberg, Oded; Purohit, Devavrat

doi:10.1023/b:qmec.0000017033.09155.12

Cited by 146 publications

(125 citation statements)

References 24 publications

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“…Previous research shows that a manufacturer can, under some conditions, earn the profits of an integrated channel and induce optimal marketing decisions through use of a standard two-part tariff strategy of charging the retailer a wholesale price equal to the marginal cost and extracting all rents from a positive fixed fee (see, for example, Jeuland and Shugan 1983;McGuire and Staelin 1983;Villas-Boas 1998). However, Desai et al (2004) find that the two-part tariff with marginal cost pricing will not work for durable goods. They prove that if channel members can initially commit to a two-period contract, then the manufacturer will use a two-part tariff with wholesale prices above marginal cost for each period to maximize channel and manufacturer profits.…”

Section: Jel Classification M31mentioning

confidence: 95%

Used goods, not used bads: Profitable secondary market sales for a durable goods channel

Shulman

Coughlan

2007

Quant Market Econ

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The existing literature on channel coordination typically models markets where used goods are not sold, or are sold outside the standard channel. However, retailers routinely sell used goods for a profit in markets like textbooks. Further, such markets are characterized by a renewable consumer population over time, rather than the static consumer population often assumed in prior literature. We show that accounting for these market characteristics alters the optimal contract form as compared to the contracts derived in prior research. In particular, when new goods are sold in both the first and second periods of our model, the optimal contract differs from those in prior literature in that it can exhibit a negative fixed fee in the second period and requires contracting over the resale price in the second period. The model shows that the manufacturer makes higher profits from allowing used-good sales alongside new-good sales than from shutting down the retailer-profitable secondary market, and that unit sales expand with a profitable secondary market over those achievable without a secondary market. Furthermore, in contrast to previous investigations of durable goods markets that ignore the possibility of a retailer-profitable secondary market, we show conditions under which the manufacturer would optimally choose to sell no new goods in the second period, ceding the market entirely to the used-goods retailer. This research thus expands our knowledge of how durable goods markets work by incorporating the profitable operation of a retailer-run resale market. Copyright Springer Science+Business Media, LLC 2007Channels of distribution, Game theory, Durable goods, Used-goods markets, Channel coordination, M31,

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Section: Jel Classification M31mentioning

confidence: 95%

Used goods, not used bads: Profitable secondary market sales for a durable goods channel

Shulman

Coughlan

2007

Quant Market Econ

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“…In the context of the McGuire andStaelin (1983) model, Moorthy (1988) provides conditions on the characteristics of the game and the demand function for decentralization to be an equilibrium strategy, and Bonanno and Vickers (1988) show that decentralization is always the equilibrium when both manufacturers employ two-part tariffs. In a different context with strategic consumers timing their purchase of a product, Desai et al (2004) and Arya and Mittendorf (2006) consider a monopolist manufacturer and show that decentralization through wholesale-price contracts can yield higher profits for the channel.…”

Section: Relation To the Literaturementioning

confidence: 99%

Competing Manufacturers in a Retail Supply Chain: On Contractual Form and Coordination

2010

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It is common for a retailer to sell products from competing manufacturers. How then should the firms manage their contract negotiations? The supply chain coordination literature focuses either on a single manufacturer selling to a single retailer or one manufacturer selling to many (possibly competing) retailers. We find that some key conclusions from those market structures do not apply in our setting, where multiple manufacturers sell through a single retailer. We allow the manufacturers to compete for the retailer's business using one of three types of contracts: a wholesale-price contract, a quantity-discount contract, or a two-part tariff. It is well known that the latter two, more sophisticated contracts enable the manufacturer to coordinate the supply chain, thereby maximizing the profits available to the firms. More importantly, they allow the manufacturer to extract rents from the retailer, in theory allowing the manufacturer to leave the retailer with only her reservation profit. However, we show that in our market structure these two sophisticated contracts force the manufacturers to compete more aggressively relative to when they only offer wholesale-price contracts, and this may leave them worse off and the retailer substantially better off. In other words, although in a serial supply chain a retailer may have just cause to fear quantity discounts and two-part tariffs, a retailer may actually prefer those contracts when offered by competing manufacturers. We conclude that the properties a contractual form exhibits in a one-manufacturer supply chain may not carry over to the realistic setting in which multiple manufacturers must compete to sell their goods through the same retailer.

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“…Our research, however, focuses on competing retailers and inter-channel spillovers, which is important in a multi-channel setting. Various other papers analyze contracts in channels assuming the channel structure to be exogenous (Cachon and Kok, 2010, Choi, 1991, Desai et al, 2004, Jeuland and Shugan, 1983, Iyer, 1998.…”

Section: Introductionmentioning

confidence: 99%

Agency Selling or Reselling? Channel Structures in Electronic Retailing

2016

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In recent years, online retailers (e-tailers) have started allowing manufacturers direct access to their customers while charging a fee for providing this access, a format commonly referred to as agency selling. In this paper, we use a stylized theoretical model to answer a key question that e-tailers are facing: When should they use an agency selling format instead of using the more conventional reselling format? We find that agency selling is more efficient than reselling and leads to lower retail prices; however, the e-tailers end up giving control over retail prices to the manufacturer. Therefore, the reaction by the manufacturer, who makes electronic channel pricing decisions based on their impact on demand in the traditional channel (brick-and-mortar retailing), is an important factor for e-tailers to consider. We find that when sales in the electronic channel lead to a negative effect on demand in the traditional channel, e-tailers prefer agency selling, whereas when sales in the electronic channel lead to substantial stimulation of demand in the traditional channel, e-tailers prefer reselling. This preference is mediated by competition between e-tailers -as competition between them increases, e-tailers prefer to use agency selling. We also find that when e-tailers benefit from positive externalities from the sales of the focal product (such as additional profits from sales of associated products), retail prices may be lower under reselling than under agency selling, and the e-tailers prefer reselling under some conditions for which they would prefer agency selling without the positive externalities.

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Strategic Decentralization and Channel Coordination

Cited by 146 publications

References 24 publications

Used goods, not used bads: Profitable secondary market sales for a durable goods channel

Used goods, not used bads: Profitable secondary market sales for a durable goods channel

Competing Manufacturers in a Retail Supply Chain: On Contractual Form and Coordination

Agency Selling or Reselling? Channel Structures in Electronic Retailing

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