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Pricing Variation Within Dual-Distribution Chains: The Different Implications of Externalities and Signaling for High- and Low-Quality Brands

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  • Arturs Kalnins

    (Cornell University, Ithaca, New York 14853)

Abstract

Within many of the multioutlet branded chains that dominate the retail and services landscape, the organizational form (e.g., company management, franchising) used to manage an outlet varies from site to site, as do the prices charged at those sites. I propose that organizational form and prices may be systematically related as a result of brand externalities. In particular, I develop logic that the relevant form of externality should differ for upper quality tier brands and lower tier brands. Using panel data on price and organizational form from more than 6,700 branded U.S. hotels affiliated with 40 “dual-distribution” brands—those brands that simultaneously company manage and franchise individual outlets—I find that, consistent with the brand externality arguments, company-managed locations have higher prices within high-quality chains, whereas franchisees price higher in the lower tiers.

Suggested Citation

  • Arturs Kalnins, 2017. "Pricing Variation Within Dual-Distribution Chains: The Different Implications of Externalities and Signaling for High- and Low-Quality Brands," Management Science, INFORMS, vol. 63(1), pages 139-152, January.
  • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:1:p:139-152
    DOI: 10.1287/mnsc.2015.2334
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    2. Wang, Da & Zhang, Yuexiao & Lou, Wandong & Zang, Wenke, 2023. "Fractal viewpoint in supply chain price competition," Chaos, Solitons & Fractals, Elsevier, vol. 176(C).
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    4. Tashlin Lakhani, 2022. "How and Why Does Franchise Ownership Affect Human Resource Practices? Evidence from the US Hotel Industry," ILR Review, Cornell University, ILR School, vol. 75(2), pages 321-347, March.
    5. Yang, Lei & Tang, Ruihong, 2019. "Comparisons of sales modes for a fresh product supply chain with freshness-keeping effort," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 125(C), pages 425-448.

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