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Contract Design with a Dominant Retailer and a Competitive Fringe

Author

Listed:
  • Sreya Kolay

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

  • Greg Shaffer

    (Simon School of Business, University of Rochester, Rochester, New York 14627)

Abstract

We show that under some conditions, quantity discounts and two-part tariffs are equivalent as mechanisms for channel coordination when an upstream firm sells its product in a downstream market that is characterized by a dominant retailer and a competitive fringe. We consider a setting in which discriminatory offers are feasible and a setting in which the same menu of options must be offered to all retailers. We find that the upstream firm's profit in both settings is independent of whether quantity discounts or two-part tariffs are used. The implication of this finding is that the firm's choice of contract design may turn on which one is easier to implement. This paper was accepted by J. Miguel Villas-Boas, marketing.

Suggested Citation

  • Sreya Kolay & Greg Shaffer, 2013. "Contract Design with a Dominant Retailer and a Competitive Fringe," Management Science, INFORMS, vol. 59(9), pages 2111-2116, September.
    • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:9:p:2111-2116
    DOI: 10.1287/mnsc.1120.1677
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    References listed on IDEAS

    as
    1. 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.
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    8. Sreya Kolay & Greg Shaffer & Janusz A. Ordover, 2004. "All‐Units Discounts in Retail Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 429-459, September.
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    Full references (including those not matched with items on IDEAS)

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