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Brand-owners’ vertical and horizontal alliance strategies facing dominant retailers: Effect of demand substitutability and complementarity

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  • Zhuo, Xiaopo
  • Wang, Fan
  • Niu, Baozhuang

Abstract

Facing dominant retailers, brand-owners are witnessed to increasingly ally with the dominant retailers or other brand-owners. To study brand-owners’ alliance strategies, we consider a bilateral duopoly setting comprising two brand-owners and two dominant retailers. The brand-owners’ alliance strategies result in three typical structures: (1) a flexible structure, where each brand-owner sells products via any retailer; (2) a vertical structure, where a brand-owner sells product exclusively via an allied retailer; and (3) a horizontal structure, where the two brand-owners form an alliance by cross-shareholding. In each structure, bilateral contract negotiations between brand-owners and retailers are conducted, with consideration of demand substitutability and complementarity. We identify vertical alliance effect and horizontal alliance effect, which both lead to a more monopolistic wholesaling market in different ways. In the vertical structure, a win-win situation exists when demand is substitutable, while the incentives for the brand-owners and retailers on forming a vertical alliance are conflicting when demand is complementary. In the horizontal structure, a win-win region exists with respect to the revenue-sharing ratio for the brand-owners to form a horizontal alliance when demand is substitutable. In contrast, given complementary demand, their incentives to form a horizontal alliance become weak.

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  • Zhuo, Xiaopo & Wang, Fan & Niu, Baozhuang, 2021. "Brand-owners’ vertical and horizontal alliance strategies facing dominant retailers: Effect of demand substitutability and complementarity," Omega, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:jomega:v:103:y:2021:i:c:s030504832100058x
    DOI: 10.1016/j.omega.2021.102449
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