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The Impact of Product Differentiation on the Channel Structure in a Manufacturer-Driven Supply Chain

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  • Angelika Endres-Fröhlich

    (Paderborn University)

Abstract

We study the impact of product differentiation on different distribution systems in a supply chain. Our market is characterized by an asymmetric supply chain with two retailers and three manufacturers that each produce one differentiated good. We determine that a non-exclusive distribution system is a Nash equilibrium for all degrees of product differentiation between the three goods. Furthermore, we assess the welfare implications of various distribution systems. We identify that the non-exclusive equilibrium channel structure provides the highest social welfare and highest consumer surplus for all degrees of product differentiation. Aside from that, we find a strong incentive for the manufacturers to form an exclusive selling cartel for close substitutes, which would cause a Pareto improvement for all firms but harm overall welfare.

Suggested Citation

  • Angelika Endres-Fröhlich, 2022. "The Impact of Product Differentiation on the Channel Structure in a Manufacturer-Driven Supply Chain," Working Papers Dissertations 92, Paderborn University, Faculty of Business Administration and Economics.
    • Handle: RePEc:pdn:dispap:92
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    product differentiation; endogenous markets; supply chains;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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