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Costs and Benefits of Inducing Intrabrand Competition: The Role of Limited Liability

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  • Ramarao Desiraju

    (Department of Marketing, College of Business Administration, P.O. Box 161400, University of Central Florida, Orlando, Florida 32816)

Abstract

When is inducing intrabrand competition (via nonexclusive distribution) an optimal strategy? To address this issue, a static model is developed to examine two settings. The manufacturer uses exclusive distributors in the first setting and nonexclusive distributors in the second. The analysis indicates that the choice of distribution rests critically on whether the manufacturer can effectively extract surplus from the distributors. Due to a variety of institutional reasons, the distributors' liability is often limited in performing on behalf of the manufacturer; such limited liability restricts how much of the distributors' surplus can be extracted. When the distributors' surplus cannot be fully extracted, the manufacturer may prefer nonexclusive distribution even when distributors can free-ride on each other's efforts.

Suggested Citation

  • Ramarao Desiraju, 2004. "Costs and Benefits of Inducing Intrabrand Competition: The Role of Limited Liability," Marketing Science, INFORMS, vol. 23(3), pages 429-450, March.
    • Handle: RePEc:inm:ormksc:v:23:y:2004:i:3:p:429-450
    DOI: 10.1287/mksc.1040.0049
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    References listed on IDEAS

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    7. Alberto Sa Vinhas & Jan B. Heide, 2015. "Forms of Competition and Outcomes in Dual Distribution Channels: The Distributor’s Perspective," Marketing Science, INFORMS, vol. 34(1), pages 160-175, January.
    8. Li, Shengyu & Luo, Rong, 2020. "Non-Exclusive Dealing with Retailer Differentiation and Market Penetration," International Journal of Industrial Organization, Elsevier, vol. 70(C).
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