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Retailers' choice of product variety and exclusive dealing under asymmetric information

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  • Yaron Yehezkel

Abstract

This article considers vertical relations between an upstream manufacturer and a downstream retailer that can independently obtain a low‐quality, discount substitute. The analysis reveals that under full information, the retailer offers both varieties if and only if it is optimal to do so under vertical integration. However, when the retailer is privately informed about demand, it offers both varieties even if under vertical integration it is profitable to offer only the manufacturer's product. If the manufacturer can impose exclusive dealing, then under asymmetric information it will do so and foreclose the low‐quality substitute even if under vertical integration it is profitable to offer both varieties.

Suggested Citation

  • 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, March.
    • Handle: RePEc:bla:randje:v:39:y:2008:i:1:p:115-143
    DOI: 10.1111/j.1756-2171.2008.00006.x
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    Cited by:

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    2. Argenton, C. & Willems, Bert, 2009. "Exclusivity as Inefficient Insurance," Discussion Paper 2009-24, Tilburg University, Center for Economic Research.
    3. Angelika Endres-Fröhlich, 2022. "The Impact of Product Differentiation on the Channel Structure in a Manufacturer-Driven Supply Chain," Working Papers Dissertations 92, Paderborn University, Faculty of Business Administration and Economics.
    4. Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, March.
    5. Martin Obradovits, 2013. "Excessive supplier pricing and high-quality foreclosure," Vienna Economics Papers vie1303, University of Vienna, Department of Economics.
    6. Cédric Argenton & Bert Willems, 2012. "Exclusivity Contracts, Insurance and Financial Market Foreclosure," Journal of Industrial Economics, Wiley Blackwell, vol. 60(4), pages 609-630, December.
    7. Martin Obradovits, 2013. "Excessive supplier pricing and high-quality foreclosure," Vienna Economics Papers 1303, University of Vienna, Department of Economics.
    8. Johannes Paha, 2017. "Wholesale Pricing with Incomplete Information about Private Label Products," MAGKS Papers on Economics 201736, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    9. Giacomo Calzolari & Vincenzo Denicol?, 2013. "Competition with Exclusive Contracts and Market-Share Discounts," American Economic Review, American Economic Association, vol. 103(6), pages 2384-2411, October.
    10. Yue Maggie Zhou & Xiang Wan, 2017. "Product variety and vertical integration," Strategic Management Journal, Wiley Blackwell, vol. 38(5), pages 1134-1150, May.
    11. Zhang, Zhe & Song, Huaming & Shi, Victor & Yang, Shilei, 2021. "Quality differentiation in a dual-channel supply chain," European Journal of Operational Research, Elsevier, vol. 290(3), pages 1000-1013.
    12. Chen, Xu & Li, Shanshan & Wang, Xiaojun, 2020. "Evaluating the effects of quality regulations on the pharmaceutical supply chain," International Journal of Production Economics, Elsevier, vol. 230(C).
    13. Martin Peitz & Dongsoo Shin, 2013. "Upstream Market Power and Wasteful Retailers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(1), pages 234-253, January.

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