ScholarlyCommons

Title

Channel Coordination in the Presence of a Dominant Retailer

Author(s)

Jagmohan S. Raju, University of Pennsylvania
Z. John Zhang, University of Pennsylvania

Document Type

Technical Report

Date of this Version

5-2005

Publication Source

Marketing Science

Volume

24

Issue

2

Start Page

254

Last Page

262

DOI

10.1287/mksc.1040.0081

Abstract

The retail trade today is increasingly dominated by large, centrally managed “power retailers.” In this paper, we develop a channel model in the presence of a dominant retailer to examine how a manufacturer can best coordinate such a channel.

We show that such a channel can be coordinated to the benefit of the manufacturer through either quantity discounts or a menu of two-part tariffs. Both pricing mechanisms allow the manufacturer to charge different effective prices and extract different surpluses from the two different types of retailers, even though they both have the appearance of being “fair.” However, quantity discounts and two-part tariffs are not equally efficient from the manufacturer’s perspective as a channel coordination mechanism. Therefore, the manufacturer must judiciously select its channel coordination mechanism.

Our analysis also sheds light on the role of “street money” in channel coordination. We show that such a practice can arise from a manufacturer’s effort to mete out minimum incentives to engage the dominant retailer in channel coordination. From this perspective, we derive testable implications with regard to the practice of street money.

Copyright/Permission Statement

Originally published in Marketing Science © 2005 INFORMS

This is a pre-publication version. The final version is available at http://dx.doi.org/10.1287/mksc.1040.0081

Keywords

distribution channels, channel power, channel coordination

Recommended Citation

Raju, J. S., & Zhang, Z. (2005). Channel Coordination in the Presence of a Dominant Retailer. Marketing Science, 24 (2), 254-262. http://dx.doi.org/10.1287/mksc.1040.0081