IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v57y2011i4p741-751.html
   My bibliography  Save this article

The Benefits of Competitive Upward Channel Decentralization

Author

Listed:
  • Yunchuan Liu

    (College of Business, University of Illinois at Urbana-Champaign, Champaign, Illinois 61820)

  • Rajeev K. Tyagi

    (The Paul Merage School of Business, University of California, Irvine, Irvine, Calilfornia 92697)

Abstract

Upward channel decentralization occurs when firms choose to not manufacture products by themselves and procure products from upstream suppliers. Current voices from marketing scholars and practitioners have predominantly focused on the cost benefits when production is outsourced to lower-cost upstream suppliers. In this paper, we study the effects of upward channel decentralization where competing firms can outsource their production to upstream suppliers who do not have any advantages on production costs. We show how downstream firms can still benefit from upward channel decentralization provided their product positioning is endogenous. Thus, we provide a new theory on the strategic benefits of upward channel decentralization. We also use this framework to show a new benefit to manufacturers selling through downstream retailers rather than directly. We examine the implications of our theory for consumer and social welfare, and also draw managerial implications. This paper was accepted by Pradeep Chintagunta, marketing.

Suggested Citation

  • Yunchuan Liu & Rajeev K. Tyagi, 2011. "The Benefits of Competitive Upward Channel Decentralization," Management Science, INFORMS, vol. 57(4), pages 741-751, April.
    • Handle: RePEc:inm:ormnsc:v:57:y:2011:i:4:p:741-751
    DOI: 10.1287/mnsc.1110.1311
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1110.1311
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1110.1311?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. Anne T. Coughlan & Birger Wernerfelt, 1989. "On Credible Delegation by Oligopolists: A Discussion of Distribution Channel Management," Management Science, INFORMS, vol. 35(2), pages 226-239, February.
    2. S. Sajeesh & Jagmohan S. Raju, 2010. "Positioning and Pricing in a Variety Seeking Market," Management Science, INFORMS, vol. 56(6), pages 949-961, June.
    3. Preyas Desai & Oded Koenigsberg & Devavrat Purohit, 2004. "Strategic Decentralization and Channel Coordination," Quantitative Marketing and Economics (QME), Springer, vol. 2(1), pages 5-22, March.
    4. Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, vol. 2(2), pages 161-191.
    5. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
    6. Ganesh Iyer, 1998. "Coordinating Channels Under Price and Nonprice Competition," Marketing Science, INFORMS, vol. 17(4), pages 338-355.
    7. Anderson, Simon, 1987. "Spatial competition and price leadership," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 369-398.
    8. S. Chan Choi, 1991. "Price Competition in a Channel Structure with a Common Retailer," Marketing Science, INFORMS, vol. 10(4), pages 271-296.
    9. Catherine C. De Fontenay & Joshua S. Gans, 2008. "A bargaining perspective on strategic outsourcing and supply competition," Strategic Management Journal, Wiley Blackwell, vol. 29(8), pages 819-839, August.
    10. Kai-Uwe Kuhn, 1997. "Nonlinear Pricing in Vertically Related Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 37-62, Spring.
    11. J. Miguel Villas-Boas, 1998. "Product Line Design for a Distribution Channel," Marketing Science, INFORMS, vol. 17(2), pages 156-169.
    12. Gregory S. Carpenter, 1989. "Perceptual Position and Competitive Brand Strategy in a Two-Dimensional, Two-Brand Market," Management Science, INFORMS, vol. 35(9), pages 1029-1044, September.
    13. Dmitri Kuksov, 2004. "Buyer Search Costs and Endogenous Product Design," Marketing Science, INFORMS, vol. 23(4), pages 490-499, May.
    14. Rajiv Lal, 1990. "Improving Channel Coordination Through Franchising," Marketing Science, INFORMS, vol. 9(4), pages 299-318.
    15. Eitan Gerstner & James D. Hess, 1995. "Pull Promotions and Channel Coordination," Marketing Science, INFORMS, vol. 14(1), pages 43-60.
    16. Sudheer Gupta & Richard Loulou, 1998. "Process Innovation, Product Differentiation, and Channel Structure: Strategic Incentives in a Duopoly," Marketing Science, INFORMS, vol. 17(4), pages 301-316.
    17. Lan Luo & P. K. Kannan & Brian T. Ratchford, 2007. "New Product Development Under Channel Acceptance," Marketing Science, INFORMS, vol. 26(2), pages 149-163, 03-04.
    18. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
    19. Charles A. Ingene & Mark E. Parry, 1995. "Channel Coordination When Retailers Compete," Marketing Science, INFORMS, vol. 14(4), pages 360-377.
    20. Liang Guo, 2006. "Consumption Flexibility, Product Configuration, and Market Competition," Marketing Science, INFORMS, vol. 25(2), pages 116-130, 03-04.
    21. Gérard P. Cachon & Patrick T. Harker, 2002. "Competition and Outsourcing with Scale Economies," Management Science, INFORMS, vol. 48(10), pages 1314-1333, October.
    22. Rajeev K. Tyagi, 2000. "Sequential Product Positioning Under Differential Costs," Management Science, INFORMS, vol. 46(7), pages 928-940, July.
    23. John R. Hauser, 1988. "Note—Competitive Price and Positioning Strategies," Marketing Science, INFORMS, vol. 7(1), pages 76-91.
    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. 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.
    2. Anthony Dukes & Tansev Geylani & Yunchuan Liu, 2014. "Dominant retailers’ incentives for product quality in asymmetric distribution channels," Marketing Letters, Springer, vol. 25(1), pages 93-107, March.
    3. Yunchuan Liu & Tony Haitao Cui, 2010. "The Length of Product Line in Distribution Channels," Marketing Science, INFORMS, vol. 29(3), pages 474-482, 05-06.
    4. Xia, Yusen & Gilbert, Stephen M., 2007. "Strategic interactions between channel structure and demand enhancing services," European Journal of Operational Research, Elsevier, vol. 181(1), pages 252-265, August.
    5. Roman Inderst & Greg Shaffer, 2019. "Managing Channel Profits When Retailers Have Profitable Outside Options," Management Science, INFORMS, vol. 65(2), pages 642-659, February.
    6. Sreekumar R. Bhaskaran & Stephen M. Gilbert, 2009. "Implications of Channel Structure for Leasing or Selling Durable Goods," Marketing Science, INFORMS, vol. 28(5), pages 918-934, 09-10.
    7. Greg Shaffer & Florian Zettelmeyer, 2002. "When Good News About Your Rival Is Good for You: The Effect of Third-Party Information on the Division of Channel Profits," Marketing Science, INFORMS, vol. 21(3), pages 273-293, November.
    8. Stephen M. Gilbert & Gang Yu & Yusen Xia, 2007. "The strategic effects of a merger upon supplier interactions," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(2), pages 162-175, March.
    9. Vincent R. Nijs & Kanishka Misra & Karsten Hansen, 2014. "Outsourcing Retail Pricing to a Category Captain: The Role of Information Firewalls," Marketing Science, INFORMS, vol. 33(1), pages 66-81, January.
    10. Jagmohan Raju & Z. John Zhang, 2005. "Channel Coordination in the Presence of a Dominant Retailer," Marketing Science, INFORMS, vol. 24(2), pages 254-262, February.
    11. Sumit Raut & Sanjeev Swami & Eunkyu Lee & Charles B. Weinberg, 2008. "How Complex Do Movie Channel Contracts Need to Be?," Marketing Science, INFORMS, vol. 27(4), pages 627-641, 07-08.
    12. Chan, Tat Y. & Narasimhan, Chakravarthi & Yoon, Yeujun, 2017. "Advertising and price competition in a manufacturer-retailer channel," International Journal of Research in Marketing, Elsevier, vol. 34(3), pages 694-716.
    13. Noah Lim & Teck-Hua Ho, 2007. "Designing Price Contracts for Boundedly Rational Customers: Does the Number of Blocks Matter?," Marketing Science, INFORMS, vol. 26(3), pages 312-326, 05-06.
    14. 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.
    15. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2007. "Fairness and Channel Coordination," Management Science, INFORMS, vol. 53(8), pages 1303-1314, August.
    16. Greg Shaffer & Florian Zettelmeyer, 2004. "Advertising in a Distribution Channel," Marketing Science, INFORMS, vol. 23(4), pages 619-628, November.
    17. Dmitri Kuksov & Amit Pazgal, 2007. "Research Note—The Effects of Costs and Competition on Slotting Allowances," Marketing Science, INFORMS, vol. 26(2), pages 259-267, 03-04.
    18. Ghosh, Debabrata & Shah, Janat, 2015. "Supply chain analysis under green sensitive consumer demand and cost sharing contract," International Journal of Production Economics, Elsevier, vol. 164(C), pages 319-329.
    19. Sudheer Gupta, 2008. "Research Note—Channel Structure with Knowledge Spillovers," Marketing Science, INFORMS, vol. 27(2), pages 247-261, 03-04.
    20. Lu, Jye-Chyi & Tsao, Yu-Chung & Charoensiriwath, Chayakrit, 2011. "Competition under manufacturer service and retail price," Economic Modelling, Elsevier, vol. 28(3), pages 1256-1264, May.

    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:inm:ormnsc:v:57:y:2011:i:4:p:741-751. 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: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    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.