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Strategic Role of Retailer Bundling in a Distribution Channel

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  • Cao, Qingning
  • Geng, Xianjun
  • Zhang, Jun

Abstract

We study retailer bundling in a distribution channel when the manufacturer for one bundled product can strategically set the wholesale price. We show that the retailer can use a bundling option as a strategic leverage to extract concessions from the manufacturer in form of a lower wholesale price. This finding contributes a novel rationale for retailer bundling to the bundling literature. Whenever the bundling option causes this concession-extraction effect, the retailer always benefits from the lower wholesale price. The manufacturer, nevertheless, does not necessarily suffer because bundling can lead to a higher consumer demand. We also show that the manufacturer's marginal production cost plays a critical role in driving the retailer's bundling decision, concession extraction behavior and consequently the total channel profit.

Suggested Citation

  • Cao, Qingning & Geng, Xianjun & Zhang, Jun, 2015. "Strategic Role of Retailer Bundling in a Distribution Channel," Journal of Retailing, Elsevier, vol. 91(1), pages 50-67.
    • Handle: RePEc:eee:jouret:v:91:y:2015:i:1:p:50-67
    DOI: 10.1016/j.jretai.2014.10.005
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