IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v15y2006i2p279-316.html
   My bibliography  Save this article

A Model of Direct and Intermediated Sales

Author

Listed:
  • Terrence Hendershott
  • Jie Zhang

Abstract

We examine a model in which an upstream firm can sell directly online and through heterogeneous intermediaries to heterogeneous consumers engaging in time‐consuming search. Direct online sales may be more or less convenient and involve costly returns if the good fits consumers poorly. Direct selling appeals to higher‐value consumers and increases the upstream firm's profits by allowing price discrimination. Competition and segmentation due to direct sales results in lower intermediary prices, making all consumers better off. Thus, entry by an upstream firm increases consumer surplus at the expense of intermediaries with the net result being an increase in social welfare.

Suggested Citation

  • Terrence Hendershott & Jie Zhang, 2006. "A Model of Direct and Intermediated Sales," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 279-316, June.
    • Handle: RePEc:bla:jemstr:v:15:y:2006:i:2:p:279-316
    DOI: 10.1111/j.1530-9134.2006.00101.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1530-9134.2006.00101.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1530-9134.2006.00101.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    2. Thomas Gehrig, 1993. "Intermediation in Search Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(1), pages 97-120, March.
    3. S. Chan Choi, 1991. "Price Competition in a Channel Structure with a Common Retailer," Marketing Science, INFORMS, vol. 10(4), pages 271-296.
    4. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
    5. John Rust & George Hall, 2003. "Middlemen versus Market Makers: A Theory of Competitive Exchange," Journal of Political Economy, University of Chicago Press, vol. 111(2), pages 353-403, April.
    6. Michael L. Katz & Carl Shapiro, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 567-589.
    7. Daniel F. Spulber, 1996. "Market Making by Price-Setting Firms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(4), pages 559-580.
    8. Devavrat Purohit, 1997. "Dual Distribution Channels: The Competition Between Rental Agencies and Dealers," Marketing Science, INFORMS, vol. 16(3), pages 228-245.
    9. Dennis W. Carlton & Judith A. Chevalier, 2001. "Free Riding and Sales Strategies for the Internet," NBER Chapters, in: E-commerce, pages 441-461, National Bureau of Economic Research, Inc.
    10. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-654, May.
    11. Gary Biglaiser, 1993. "Middlemen as Experts," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 212-223, Summer.
    12. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    13. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 493-510.
    14. Paul Klemperer & Margaret Meyer, 1986. "Price Competition vs. Quantity Competition: The Role of Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 618-638, Winter.
    15. Anne T. Coughlan, 1985. "Competition and Cooperation in Marketing Channel Choice: Theory and Application," Marketing Science, INFORMS, vol. 4(2), pages 110-129.
    16. K. Sridhar Moorthy, 1987. "Comment—Managing Channel Profits: Comment," Marketing Science, INFORMS, vol. 6(4), pages 375-379.
    17. Fingleton, John, 1997. "Competition among Middlemen When Buyers and Sellers Can Trade Directly," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 405-427, December.
    18. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
    19. John Fingleton, 1997. "Competition Among Middlemen When Buyers and Sellers Can Trade Directly," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 405-427, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pieter Gautier & Bo Hu & Makoto Watanabe, 2023. "Marketmaking Middlemen," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 83-103, March.
    2. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    3. Simon Loertscher, 2005. "Market making oligopoly," Diskussionsschriften dp0512, Universitaet Bern, Departement Volkswirtschaft.
    4. Klaus Kultti & Tuomas Takalo & Oskari Vähämaa, 2021. "Intermediation in a directed search model," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 456-471, May.
    5. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    6. Tobias Salz, 2020. "Intermediation and Competition in Search Markets: An Empirical Case Study," NBER Working Papers 27700, National Bureau of Economic Research, Inc.
    7. Simon Loertscher, 2008. "Market Making Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 263-289, June.
    8. Randall Wright & Yuet‐Yee Wong, 2014. "Buyers, Sellers, And Middlemen: Variations On Search‐Theoretic Themes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(2), pages 375-397, May.
    9. De Fraja, Gianni & Sákovics, József, 2012. "Exclusive nightclubs and lonely hearts columns: Non-monotone participation in optional intermediation," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 618-632.
    10. Makoto Watanabe, 2018. "Middle Men: The Visible Market-Makers," The Japanese Economic Review, Springer, vol. 69(2), pages 156-170, June.
    11. Polanski Arnold & Cardona Daniel, 2012. "Multilevel Mediation in Symmetric Trees," Review of Network Economics, De Gruyter, vol. 11(3), pages 1-23, September.
    12. Arya, Anil & Löffler, Clemens & Mittendorf, Brian & Pfeiffer, Thomas, 2015. "The middleman as a panacea for supply chain coordination problems," European Journal of Operational Research, Elsevier, vol. 240(2), pages 393-400.
    13. Xianwen Shi & Aloysius Siow, 2014. "Information externalities and intermediaries in frictional search markets," Canadian Journal of Economics, Canadian Economics Association, vol. 47(4), pages 1131-1152, November.
    14. Zhong, Zhuo, 2016. "Reducing opacity in over-the-counter markets," Journal of Financial Markets, Elsevier, vol. 27(C), pages 1-27.
    15. Simon Loertscher, 2007. "Horizontally Differentiated Market Makers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(4), pages 793-825, December.
    16. Yunchuan Liu & Z. John Zhang, 2006. "Research Note—The Benefits of Personalized Pricing in a Channel," Marketing Science, INFORMS, vol. 25(1), pages 97-105, 01-02.
    17. Domenico Colucci & Vincenzo Valori, 2008. "Asset Price Dynamics When Behavioural Heterogeneity Varies," Computational Economics, Springer;Society for Computational Economics, vol. 32(1), pages 3-20, September.
    18. Watanabe Makoto, 2020. "Middlemen: A Directed Search Equilibrium Approach," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-37, June.
    19. repec:zbw:bofrdp:2018_020 is not listed on IDEAS
    20. Roman Inderst & Greg Shaffer, 2019. "Managing Channel Profits When Retailers Have Profitable Outside Options," Management Science, INFORMS, vol. 65(2), pages 642-659, February.
    21. Iaryczower, Matias & Oliveros, Santiago, 2016. "Power brokers: Middlemen in legislative bargaining," Journal of Economic Theory, Elsevier, vol. 162(C), pages 209-236.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:15:y:2006:i:2:p:279-316. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.