IDEAS home Printed from https://ideas.repec.org/a/kap/qmktec/v3y2005i3p247-279.html
   My bibliography  Save this article

Managing Channel Profits: The Role of Managerial Incentives

Author

Listed:
  • Pradeep Bhardwaj
  • Sridhar Balasubramanian

Abstract

The existing literature has examined how manufacturers can enhance profits by employing specific channel structures and channel coordination mechanisms. In this paper, we examine the implications of strategically designed managerial incentives for channel performance in a duopoly. We first analyze how equilibrium outcomes (especially manufacturer profits) are altered when the manufacturers provide their channel managers with strategically designed incentives. Following that, we examine how optimal channel structure decisions are altered when manufacturers provide their managers with strategic incentives, i.e., we examine how strategic incentives moderate optimal channel structure decisions. In contrast with the existing literature, we find that an asymmetric channel structure with one manufacturer employing a profit-maximizing retailer and the other integrated manufacturer providing strategic incentives for the channel manager in charge of pricing, is an equilibrium outcome under certain conditions. We then compare how the implications of strategic incentives differ from those of channel structure decisions and channel coordination initiatives, and discuss when and why strategic incentives yield superior outcomes from the manufacturer’s perspective. Our results shed light on the sparsely researched role of managerial incentives in the channel context. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Pradeep Bhardwaj & Sridhar Balasubramanian, 2005. "Managing Channel Profits: The Role of Managerial Incentives," Quantitative Marketing and Economics (QME), Springer, vol. 3(3), pages 247-279, September.
    • Handle: RePEc:kap:qmktec:v:3:y:2005:i:3:p:247-279
    DOI: 10.1007/s11129-005-0332-4
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11129-005-0332-4
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11129-005-0332-4?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
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    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. James W. Friedman, 1973. "A Non-cooperative Equilibrium for Supergames: A Correction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(3), pages 435-435.
    3. Chaim Fershtman & Kenneth L. Judd, 2006. "Equilibrium Incentives in Oligopoly: Corrigendum," American Economic Review, American Economic Association, vol. 96(4), pages 1367-1367, September.
    4. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
    5. Lafontaine, F., 1990. "An Empirical Look At Franchise Contracts As Signaling Devices," GSIA Working Papers 1990-19, Carnegie Mellon University, Tepper School of Business.
    6. Wujin Chu & Preyas S. Desai, 1995. "Channel Coordination Mechanisms for Customer Satisfaction," Marketing Science, INFORMS, vol. 14(4), pages 343-359.
    7. Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 245-253, June.
    8. K. Sridhar Moorthy, 1988. "Strategic Decentralization in Channels," Marketing Science, INFORMS, vol. 7(4), pages 335-355.
    9. Amiya K. Basu & Rajiv Lal & V. Srinivasan & Richard Staelin, 1985. "Salesforce Compensation Plans: An Agency Theoretic Perspective," Marketing Science, INFORMS, vol. 4(4), pages 267-291.
    10. Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, vol. 2(2), pages 161-191.
    11. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Krafft, Manfred & Goetz, Oliver & Mantrala, Murali & Sotgiu, Francesca & Tillmanns, Sebastian, 2015. "The Evolution of Marketing Channel Research Domains and Methodologies: An Integrative Review and Future Directions," Journal of Retailing, Elsevier, vol. 91(4), pages 569-585.
    2. Abel P. Jeuland & Steven M. Shugan, 2008. "Commentary—Managing Channel Profits," Marketing Science, INFORMS, vol. 27(1), pages 49-51, 01-02.
    3. Stylianos Despotakis & Isa Hafalir & R. Ravi & Amin Sayedi, 2017. "Expertise in Online Markets," Management Science, INFORMS, vol. 63(11), pages 3895-3910, November.
    4. Bian, Junsong & Guo, Xiaolei & Li, Kevin W., 2015. "Distribution channel strategies in a mixed market," International Journal of Production Economics, Elsevier, vol. 162(C), pages 13-24.
    5. Xingtang Wang & Leonard F.S. Wang, 2021. "External bargaining versus internal manipulation: A theory of managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 134-142, January.
    6. Colombo, Stefano & Scrimitore, Marcella, 2018. "Managerial delegation under capacity commitment: A tale of two sources," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 149-161.
    7. Bian, Junsong & Guo, Xiaolei & Li, Kevin W., 2018. "Decentralization or integration: Distribution channel selection under environmental taxation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 113(C), pages 170-193.

    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. Sridhar Balasubramanian & Pradeep Bhardwaj, 2004. "When Not All Conflict Is Bad: Manufacturing-Marketing Conflict and Strategic Incentive Design," Management Science, INFORMS, vol. 50(4), pages 489-502, April.
    2. Pradeep Bhardwaj, 2001. "Delegating Pricing Decisions," Marketing Science, INFORMS, vol. 20(2), pages 143-169, September.
    3. 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.
    4. 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.
    5. Govert Vroom, 2006. "Organizational Design and the Intensity of Rivalry," Management Science, INFORMS, vol. 52(11), pages 1689-1702, November.
    6. Matsui, Kenji, 2012. "Strategic upfront marketing channel integration as an entry barrier," European Journal of Operational Research, Elsevier, vol. 220(3), pages 865-875.
    7. Youping Li & Jie Shuai, 2017. "Vertical separation with location–price competition," Journal of Economics, Springer, vol. 121(3), pages 255-266, July.
    8. Fiocco, Raffaele, 2016. "The strategic value of partial vertical integration," European Economic Review, Elsevier, vol. 89(C), pages 284-302.
    9. Kai-Uwe Kuhn, 1997. "Nonlinear Pricing in Vertically Related Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 37-62, Spring.
    10. Minakshi Trivedi, 1998. "Distribution Channels: An Extension of Exclusive Retailership," Management Science, INFORMS, vol. 44(7), pages 896-909, July.
    11. Bloomfield, Matthew J., 2021. "Compensation disclosures and strategic commitment: Evidence from revenue-based pay," Journal of Financial Economics, Elsevier, vol. 141(2), pages 620-643.
    12. Lusheng Shao & Xiaole Wu & Fuqiang Zhang, 2020. "Sourcing Competition under Cost Uncertainty and Information Asymmetry," Production and Operations Management, Production and Operations Management Society, vol. 29(2), pages 447-461, February.
    13. Richard Staelin, 2008. "Commentary—An Industry Equilibrium Analysis of Downstream Vertical Integration: Twenty-Five Years Later," Marketing Science, INFORMS, vol. 27(1), pages 111-114, 01-02.
    14. Delbono, Flavio & Lambertini, Luca, 2020. "On the collusive nature of managerial contracts based on comparative performance," Research in Economics, Elsevier, vol. 74(1), pages 12-18.
    15. Di Wu & Leonard F. S. Wang & Jie Ma, 2024. "Corporate profit tax, managerial delegation and multinational firm's transfer pricing," Metroeconomica, Wiley Blackwell, vol. 75(3), pages 326-338, July.
    16. Anil Arya & Hans Frimor & Brian Mittendorf, 2015. "Decentralized Procurement in Light of Strategic Inventories," Management Science, INFORMS, vol. 61(3), pages 578-585, March.
    17. Spagnolo, Giancarlo, 2005. "Managerial incentives and collusive behavior," European Economic Review, Elsevier, vol. 49(6), pages 1501-1523, August.
    18. Baojun Jiang & Kinshuk Jerath & Kannan Srinivasan, 2011. "Firm Strategies in the "Mid Tail" of Platform-Based Retailing," Marketing Science, INFORMS, vol. 30(5), pages 757-775, September.
    19. Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
    20. Ricardo Biscaia & Paula Sarmento, 2013. "Location Decisions in a Natural Resource Model of Cournot Competition," FEP Working Papers 509, Universidade do Porto, Faculdade de Economia do Porto.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    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:kap:qmktec:v:3:y:2005:i:3:p:247-279. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.