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Manufacturer’s direct distribution with incumbent retailer’s product line choice

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  • Pan, Cong

Abstract

This study explores how an incumbent retailer chooses its product line when challenged by its manufacturer’s direct channel. A bilateral monopoly supply chain with two horizontally differentiated product varieties is considered. The retailer decides either or both varieties to procure from the manufacturer. After receiving the retailer’s order, the manufacturer chooses whether to establish its direct channel, and if so, chooses either or both varieties to sell directly to consumers. My findings show that when facing the manufacturer’s direct channel, the retailer may strategically abandon one variety under certain circumstances. The emergence of a direct channel always reduces the retailer’s profit and may even reduce the manufacturer’s own profit, meaning a “lose-lose” situation.

Suggested Citation

  • Pan, Cong, 2019. "Manufacturer’s direct distribution with incumbent retailer’s product line choice," Economics Letters, Elsevier, vol. 174(C), pages 136-139.
    • Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:136-139
    DOI: 10.1016/j.econlet.2018.11.011
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    References listed on IDEAS

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    1. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
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    Cited by:

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    More about this item

    Keywords

    Direct distribution; Channel conflicts; Product line choice;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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