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Strategic Manufacturer Response to a Dominant Retailer

Author

Listed:
  • Tansev Geylani

    (Katz Graduate School of Business, University of Pittsburgh, 320 Mervis Hall, Pittsburgh, Pennsylvania 15260)

  • Anthony J. Dukes

    (School of Economics and Management, University of Aarhus, Building 1322, 8000 Aarhus C, Denmark)

  • Kannan Srinivasan

    (Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, Pennsylvania 15213)

Abstract

The growing dominance of large retailers has altered traditional channel incentives for manufacturers. In this paper, we present a theoretical model to illustrate a strategic manufacturer response to a dominant retailer. In our model, a dominant and a weak retailer compete for the sale of a single product supplied by a single manufacturer. The dominant retailer has the power to dictate the wholesale price, but the manufacturer sets the wholesale price for the weak retailer. The manufacturer also has partial ability to transfer demand between retailers. In the strategic manufacturer response, the manufacturer begins by raising the wholesale price for the weak retailer over that for the dominant retailer. This makes the weak retailer the high-margin channel. The manufacturer then transfers demand to the weak retailer by engaging in joint promotions and advertising. We then use this strategic response model to derive a testable hypothesis that may guide future research in determining the source of dominant retailers' low prices.

Suggested Citation

  • Tansev Geylani & Anthony J. Dukes & Kannan Srinivasan, 2007. "Strategic Manufacturer Response to a Dominant Retailer," Marketing Science, INFORMS, vol. 26(2), pages 164-178, 03-04.
    • Handle: RePEc:inm:ormksc:v:26:y:2007:i:2:p:164-178
    DOI: 10.1287/mksc.1060.0239
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    References listed on IDEAS

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