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Strategic Choice of Channel Structure in an Oligopoly

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Abstract

The traditional wisdom holds that the benefits of a decentralized channel structure arise from downstream competitive relationships. In contrast, Arya and Mittendorf (2007) showed that the value of decentralization can also arise from upstream interaction when the downstream firm conveys internal strife (decentralization) to an upstream external supplier. This paper extends the single firm centralization- decentralization choice model of Arya and Mittendorf (2007) to a strategic choice model in which all downstream competitors play a strategic centralization-decentralization game. We demonstrate that whether the main conclusions in the context of non-strategic choice of channel structure continue to hold when all firms play a centralization-decentralization game depends critically on the market structure of the upstream input market. Specifically, the conclusions are valid if all firms have exclusive upstream input suppliers but not so if the upstream input market is monopolized. Thus, whether the value of decentralization can arise from upstream interaction depends critically on the market structure of the upstream market.

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File URL: http://economics.missouri.edu/working-papers/2011/WP1102_wang.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 1102.

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Length: 42 pgs.
Date of creation: 09 Mar 2011
Date of revision:
Handle: RePEc:umc:wpaper:1102

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Keywords: Strategic Choice; Channel Structure; Oligopoly;

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  1. Mark Armstrong & John Vickers & Jidong Zhou, 2008. "Prominence and Consumer Search," Economics Series Working Papers 379, University of Oxford, Department of Economics.
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Cited by:
  1. Nie, Pu-yan, 2013. "Duopoly quality commitment," Economic Modelling, Elsevier, vol. 33(C), pages 832-842.
  2. Pu-yan Nie, 2014. "Effects of capacity constraints on mixed duopoly," Journal of Economics, Springer, vol. 112(3), pages 283-294, July.

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