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Retailer voluntary investment against a threat of manufacturer encroachment

Author

Listed:
  • Jumpei Hamamura

    (Momoyama Gakuin University)

  • Yusuke Zennyo

    (Kobe University)

Abstract

To elucidate supply chain cooperation between a manufacturer and a retailer, this study examines a model in which the retailer makes voluntary investments to reduce the marginal production cost of the manufacturer. The manufacturer is allowed to introduce a direct selling channel in addition to the indirect channel through the retailer (i.e., manufacturer encroachment), which however dampens the retailers’ investment incentives. The retailer can leverage its voluntary investments as a means of deterring manufacturer encroachment. We demonstrate that manufacturer encroachment is strategically deterred when the retailer’s cost-reduction technology is sufficiently effective. This strategic encroachment deterrence encourages the retailer to invest more, but it narrows the variety of channels from which consumers can select. When the latter effect dominates the former effect, consumer surplus declines with strategic encroachment deterrence.

Suggested Citation

  • Jumpei Hamamura & Yusuke Zennyo, 2021. "Retailer voluntary investment against a threat of manufacturer encroachment," Marketing Letters, Springer, vol. 32(4), pages 379-395, December.
    • Handle: RePEc:kap:mktlet:v:32:y:2021:i:4:d:10.1007_s11002-021-09575-7
    DOI: 10.1007/s11002-021-09575-7
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    References listed on IDEAS

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    Cited by:

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    2. Ponnachiyur Maruthasalam, Arulanantha Prabu & Balasubramanian, Ganesh, 2023. "Supplier encroachment in the presence of asymmetric retail competition," International Journal of Production Economics, Elsevier, vol. 264(C).
    3. Pi, Zhenyang & Fang, Weiguo & Perera, Sandun C. & Zhang, Baofeng, 2022. "Enhancing the online buyer perception of consumer experience products in a dual-channel supply chain: A new role of free-riding," International Journal of Production Economics, Elsevier, vol. 253(C).
    4. Yao, Yao & Zhang, Jianxiong & Fan, Xiaoqing, 2022. "Strategic pricing: An anti-encroachment policy of retailer with uncertainty in retail service," European Journal of Operational Research, Elsevier, vol. 302(1), pages 144-157.
    5. Matsui, Kenji, 2024. "Should competing suppliers with dual-channel supply chains adopt agency selling in an e-commerce platform?," European Journal of Operational Research, Elsevier, vol. 312(2), pages 587-604.
    6. Matsui, Kenji, 2022. "Should a retailer bargain over a wholesale price with a manufacturer using a dual-channel supply chain?," European Journal of Operational Research, Elsevier, vol. 300(3), pages 1050-1066.
    7. Kittaka, Yuta & Pan, Cong, 2023. "The bright side of outside market entry with manufacturer encroachment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 180(C).

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