IDEAS home Printed from https://ideas.repec.org/p/dpr/wpaper/1026.html
   My bibliography  Save this paper

A manufacturer's incentive to open its direct channel and its impact on welfare

Author

Listed:
  • Noriaki Matsushima
  • Tomomichi Mizuno
  • Cong Pan

Abstract

We consider a bilateral monopoly in which a manufacturer can open its direct channel that is less efficient than the existing retailer. We find the following results. The manufacturer opens its direct channel if its bargaining power over the existing retailer is weak. Opening the direct channel is detrimental to social welfare if this channel is efficient. Under a linear demand specification, if the equilibrium unit price under such opening is higher than that under no opening, the opening reduces social welfare under most of the parameter range of the efficiency of the manufacturer's direct channel.

Suggested Citation

  • Noriaki Matsushima & Tomomichi Mizuno & Cong Pan, 2018. "A manufacturer's incentive to open its direct channel and its impact on welfare," ISER Discussion Paper 1026, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:1026
    as

    Download full text from publisher

    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2018/DP1026.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Noriaki Matsushima & Tomomichi Mizuno, 2018. "Supplier encroachment and retailer effort," ISER Discussion Paper 1027, Institute of Social and Economic Research, Osaka University.
    2. Cong Pan, 2018. "Supplier Encroachment and Consumer Welfare: Upstream Firm’s Opportunism and Multichannel Distribution," ISER Discussion Paper 1020, Institute of Social and Economic Research, Osaka University.
    3. Anil Arya & Brian Mittendorf & David E. M. Sappington, 2007. "The Bright Side of Supplier Encroachment," Marketing Science, INFORMS, vol. 26(5), pages 651-659, 09-10.
    4. Blair,Roger D. & Lafontaine,Francine, 2011. "The Economics of Franchising," Cambridge Books, Cambridge University Press, number 9780521775892, October.
    5. Markus Reisinger & Emanuele Tarantino, 2015. "Vertical integration, foreclosure, and productive efficiency," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 461-479, September.
    6. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    7. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
    8. Zhuoxin Li & Stephen M. Gilbert & Guoming Lai, 2015. "Supplier Encroachment as an Enhancement or a Hindrance to Nonlinear Pricing," Production and Operations Management, Production and Operations Management Society, vol. 24(1), pages 89-109, January.
    9. Arturs Kalnins, 2004. "An Empirical Analysis of Territorial Encroachment Within Franchised and Company-Owned Branded Chains," Marketing Science, INFORMS, vol. 23(4), pages 476-489, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Noriaki Matsushima & Tomomichi Mizuno, 2018. "Supplier encroachment and retailer effort," ISER Discussion Paper 1027, Institute of Social and Economic Research, Osaka University.
    2. Chrysovalantou Milliou & Konstantinos Serfes, 2023. "Supplier Encroachment with Mutual Outsourcing," CESifo Working Paper Series 10519, CESifo.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cong Pan, 2018. "Supplier Encroachment and Consumer Welfare: Upstream Firm’s Opportunism and Multichannel Distribution," ISER Discussion Paper 1020, Institute of Social and Economic Research, Osaka University.
    2. Lømo, Teis Lunde, 2015. "Risk sharing mitigates opportunism in vertical contracting," Working Papers in Economics 10/15, University of Bergen, Department of Economics.
    3. Long Gao & Liang Guo & Adem Orsdemir, 2021. "Dual‐Channel Distribution: The Case for Cost Information Asymmetry," Production and Operations Management, Production and Operations Management Society, vol. 30(2), pages 494-521, February.
    4. Pagnozzi, Marco & Piccolo, Salvatore & Reisinger, Markus, 2021. "Vertical contracting with endogenous market structure," Journal of Economic Theory, Elsevier, vol. 196(C).
    5. Eguia, Jon X. & Llorente-Saguer, Aniol & Morton, Rebecca & Nicolò, Antonio, 2018. "Equilibrium selection in sequential games with imperfect information," Games and Economic Behavior, Elsevier, vol. 109(C), pages 465-483.
    6. Larry G. Epstein & Hiroaki Kaido & Kyoungwon Seo, 2016. "Robust Confidence Regions for Incomplete Models," Econometrica, Econometric Society, vol. 84, pages 1799-1838, September.
    7. Simona Grassi & Ching-to Albert Ma, 2016. "Information acquisition, referral, and organization," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 935-960, November.
    8. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2024. "How Does Downstream Firms’ Efficiency Affect Exclusive Supply Agreements?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(2), pages 219-242, March.
    9. Johan Hombert & Jérôme Pouyet & Nicolas Schutz, 2019. "Anticompetitive Vertical Merger Waves," Journal of Industrial Economics, Wiley Blackwell, vol. 67(3-4), pages 484-514, September.
    10. Zheng, Shengming & Yu, Yugang, 2021. "Manufacturer encroachment with equal pricing strategy," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 152(C).
    11. Leda Maria Bonazzi & Raffaele Fiocco & Salvatore Piccolo, 2021. "Vertical Price Restraints and Free Entry Under Asymmetric Information," Journal of Industrial Economics, Wiley Blackwell, vol. 69(4), pages 854-899, December.
    12. Li, Jin & Yi, Liao & Shi, Victor & Chen, Xiding, 2021. "Supplier encroachment strategy in the presence of retail strategic inventory: Centralization or decentralization?," Omega, Elsevier, vol. 98(C).
    13. Bakaouka, Elpiniki & Milliou, Chrysovalantou, 2018. "Vertical licensing, input pricing, and entry," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 66-96.
    14. Bisceglia, Michele & Padilla, Jorge & Piccolo, Salvatore & Shekhar, Shiva, 2022. "Vertical integration, innovation and foreclosure with competing ecosystems," Information Economics and Policy, Elsevier, vol. 60(C).
    15. 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).
    16. Pinopoulos, Ioannis N., 2019. "On the welfare effects of vertical integration: Opportunism vs. double marginalization," Economics Letters, Elsevier, vol. 174(C), pages 169-172.
    17. Hunold, Matthias & Schad, Jannika, 2023. "Single monopoly profits, vertical mergers, and downstream foreclosure," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    18. Mandal, Prasenjit & Jain, Tarun, 2021. "Partial outsourcing from a rival: Quality decision under product differentiation and information asymmetry," European Journal of Operational Research, Elsevier, vol. 292(3), pages 886-908.
    19. repec:dpr:wpaper:0878 is not listed on IDEAS
    20. Moresi, Serge & Schwartz, Marius, 2017. "Strategic incentives when supplying to rivals with an application to vertical firm structure," International Journal of Industrial Organization, Elsevier, vol. 51(C), pages 137-161.
    21. Salvatore Piccolo & Markus Reisinger, 2011. "Exclusive Territories and Manufacturers' Collusion," Management Science, INFORMS, vol. 57(7), pages 1250-1266, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dpr:wpaper:1026. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Librarian (email available below). General contact details of provider: https://edirc.repec.org/data/isosujp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.