The Length of Product Line in Distribution Channels

Abstract

T his paper studies a manufacturer's optimal decisions on extending its product line when the manufacturer sells through either a centralized channel or a decentralized channel. We show that a manufacturer may provide a longer product line for consumers in a decentralized channel than in a centralized channel if the market is fully covered. In addition, a manufacturer's decisions on the length of its product line may not always be optimal from a social welfare perspective in either a centralized or a decentralized channel. Under certain conditions, a decentralized channel can provide the product line length that is socially optimal, whereas a centralized channel cannot.

Strategic Role of Retailer Bundling in a Distribution Channel

“…Our paper adds to this literature by showing when and how downstream bundling can improve channel coordination. Another stream of channel literature studies how channel structure affects firms' marketing decisions and profitability (Bhaskaran and Gilbert 2009;Cai, Dai, and Zhou 2012;Choi 1991;Coughlan 1985;Coughlan and Wernerfelt 1989;Desai, Koenigsberg, and Purohit 2004;Liu and Cui 2010;Liu and Tyagi 2011;Mcguire and Staelin 1983;Shulman, Coughlan, and Savaskan 2010). Our work complements this literature by showing how a decentralized channel structure can distort a downstream firm's bundling decision.…”

The Evolution of Marketing Channels: Trends and Research Directions

“…Within marketing channels research, a key focus is that decentralized channels result in inefficiencies (i.e., sub-optimal profit/utility maximization), and channel partners are responsible for structuring contracts and incentives to repair these inefficiencies. Coughlan (1985); Jeuland and Shugan (1988); Kuksov and Xie (2010); Liu and Cui (2010);Nasser, Turcic, and Narasimhan (2013).…”

Income distribution, quality differentiation and product line design

“…In the above participation constraints, the only binding constraint is (11). If there is no binding at all, firm will reduce the reservation utility of all consumers and it will increase the profit without violating participation constraints.…”