The Role of Market Evolution in Channel Contracting

Abstract

Real markets evolve over time. They often exhibit complex behaviors, such as autocorrelation, continuity, and nonstationarity. How do these behaviors affect channel contracting? We study the problem in a bilateral channel where the retailer has private information on evolving market conditions. We characterize the optimal contract under arbitrary market evolution. The central notion is market inertia: it prices retailer's information advantage, dictates price and quantity response over time, and determines the contract complexity. Using market inertia, we identify a general property-stochastic linearity-that justifies the use of simple contracts for a much larger class of channel conditions. For practitioners, we offer refined guidance: (i) when the market has linear dynamics, simple contracts are sufficient; (ii) when the market is continuous, the quantity distortion should be pervasive; (iii) when the market is nonstationary, the distortion can vanish, intensify, stay constant, or even go non-monotonic over time. By highlighting the central role of realistic market behaviors, this paper advances our understanding of channel theory and practice.

El efecto del mercadeo en el ecosistema la importancia de la comunicación asertiva para alcanzar metas ambientales

“…S on muy diversas las condiciones que hacen de un mercado lo que se percibe de él cuando se busca analizarlo, las variables presentes son muchas y cada una integra características tan disímiles que el ejercicio de realmente entender las semejanzas y similitudes de un mercado a otro no sea una labor para nada fácil (Siering, & Janze, 2019). Entendiendo como mercado ese entorno donde interactúan las fuerzas de oferta y demanda, enmarcadas dentro de unas capacidades específicas de producción, distribución y consumo de bienes tangibles e intangibles, se puede decir que son muchos los factores que se deben entrar a analizar para realmente entender la dinámica de generación y consumo de dichos bienes (Gao, & Mishra, 2019).…”

How much is enough? The role of effort in market shaping

“…Market shaping has received increasing attention in marketing academe, and most research takes the perspective of the focal firm. To ensure our theorizing is grounded in a broad frame of understanding, we also consider literature that pertains to market driving (Jaworski et al , 2000), market innovation (Kjellberg et al , 2015; Storbacka, 2019), market evolution (Gao and Mishra, 2019), market creation (Martin and Schouten, 2014) and market shaping (Baker et al , 2019; Nenonen et al , 2019). As is evident in Table 1, in which we summarize various definitions of market shaping, studies predominantly have considered the phenomenon from the perspective of the market shaper (Jaworski et al , 2000; Kumar et al , 2000), though some more recent studies have broadened the view to other, multiple actors (Baker et al , 2019; Kjellberg et al , 2015).…”