Date of this Version
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.
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
distribution channels, channel power, channel coordination
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
Date Posted: 15 June 2018
This document has been peer reviewed.