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A Model of Direct and Intermediated Sales

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  • Terrence Hendershott
  • Jie Zhang

Abstract

We examine a model in which an upstream firm can sell directly online and through heterogeneous intermediaries to heterogeneous consumers engaging in time‐consuming search. Direct online sales may be more or less convenient and involve costly returns if the good fits consumers poorly. Direct selling appeals to higher‐value consumers and increases the upstream firm's profits by allowing price discrimination. Competition and segmentation due to direct sales results in lower intermediary prices, making all consumers better off. Thus, entry by an upstream firm increases consumer surplus at the expense of intermediaries with the net result being an increase in social welfare.

Suggested Citation

  • Terrence Hendershott & Jie Zhang, 2006. "A Model of Direct and Intermediated Sales," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 279-316, June.
    • Handle: RePEc:bla:jemstr:v:15:y:2006:i:2:p:279-316
    DOI: 10.1111/j.1530-9134.2006.00101.x
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    References listed on IDEAS

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