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Networks of Manufacturers and Retailers

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Author Info
Ana, MAULEON
José, SEMPERE-MONERRIS
Vincent, VANNETELBOSCH

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Abstract

We study the endogenous formation of networks between manufacturers of differentiated goods and multi-product retailers who interact in a successive duopoly. Joint consent is needed to establish and/or maintain a costly link between a manufacturer and a retailer. We find that only three distribution networks are stable for particular values of the degree of product differentiation and link costs : (i) the non-exclusive distribtion & non-exclusive dealing network in which both retailers distribute both products is stable for intermediate degree of product differentiation and small link costs; (ii) the exclusive distribution & exclusive dealing network in which each retailer distributes a different product is stable for low degrees of product differentiation; (iii) the mixed distribution network in which one retailer distributes both products while the other retailer sells only one is stable for high degrees of product differentiation and large link costs. We show that the distribution networks that maximize social welfare are not necessarily stable. Thus, a conflict between stability and social welfare is likely to occur, even more if the degree of product differentiation is either low or high.

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Publisher Info
Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Université catholique de Louvain, Département des Sciences Economiques Working Paper with number 2005036.

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Length: 46
Date of creation: 15 Jun 2005
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Handle: RePEc:ctl:louvec:2005036

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Related research
Keywords: Networks Retailers Manufacturers

Find related papers by JEL classification:
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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References listed on IDEAS
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  2. Sass, Tim R., 2005. "The competitive effects of exclusive dealing: Evidence from the U.S. beer industry," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 203-225, April. [Downloadable!] (restricted)
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  17. Jerzy Mycielski & Yohannes E. Riyanto & Filip Wuyts, 2000. "Inter- and Intraband Competition and the Manufacturer-Retailer Relationship," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(4), pages 599-, December.
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