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Managing Channel Profits: The Role of Managerial Incentives

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  • 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
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    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.

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