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The Manufacturers’ Choice of Distribution Policy under Successive Duopoly

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Author Info

  • Rafael Moner-Colonques

    ()
    (Department of Economic Analysis, University of Valencia)

  • José J. Sempere-Monerris

    ()
    (Department of Economic Analysis, University of Valencia, and IRES, Institut de Recherches Économiques et Sociales)

  • Amparo Urbano

    ()
    (Department of Economic Analysis, University of Valencia)

Abstract

We examine an asymmetric noncooperative game between two manufacturers selecting the number of retailers who can distribute their products. In deciding whether to distribute through one or both retailers, there are two conflicting effects: the output expansion effect, because the product is sold in more outlets; and the competitive effect, associated with the introduction of intrabrand competition. Product differentiation and demand asymmetries between the two products determine which of these two effects dominates the other. When product differentiation is strong and brand asymmetry is moderate, both manufacturers distribute through both retailers in equilibrium. However, when both product differentiation and brand asymmetry are weak, exclusive dealing through a single retailer is the equilibrium. Perhaps the most interesting finding is that there also exist asymmetric equilibria in which one manufacturer distributes through both retailers but the other manufacturer distributes through one retailer. These equilibria can arise when both product differentiation and brand asymmetry are strong.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 70 (2004)
Issue (Month): 3 (January)
Pages: 532-548

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Handle: RePEc:sej:ancoec:v:70:3:y:2004:p:532-548

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Karp, Larry & Perloff, Jeffrey, 2011. "The iPhone Goes Downstream: Mandatory Universal Distribution∗," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7vc007jh, Department of Agricultural & Resource Economics, UC Berkeley.
  2. Wu, Chongqi & Mallik, Suman, 2005. "Channel Structure, Cross Sales, and Vertical Integration in a Multi-channel Distribution System," Working Papers 05-0127, University of Illinois at Urbana-Champaign, College of Business.
  3. Stennek, Johan, 2007. "Exclusive Quality - Why Exclusive Distribution May Benefit the TV Viewers," CEPR Discussion Papers 6072, C.E.P.R. Discussion Papers.
  4. Mauleon, Ana & Sempere-Monerris, Jose J. & Vannetelbosch, Vincent J., 2011. "Networks of manufacturers and retailers," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 351-367, March.
  5. Yaron Yehezkel, 2008. "Retailers' choice of product variety and exclusive dealing under asymmetric information," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 115-143.
  6. Wu, Chongqi & Mallik, Suman, 2010. "Cross sales in supply chains: An equilibrium analysis," International Journal of Production Economics, Elsevier, vol. 126(2), pages 158-167, August.
  7. Moner-Colonques, Rafael, 2006. "The tradeoffs between retail service and exclusivity in distribution: Welfare and policy implications," International Review of Law and Economics, Elsevier, vol. 26(2), pages 241-261, June.
  8. Igor Muraviev, 2007. "Equilibrium Configurations of Distribution Channels in Bilaterally Oligopolistic Industries," Working Papers hal-00243078, HAL.

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