On the Length of Wholesale Marketing Channels in Japan

Wholesalers enter distribution channels to capitalize on their private information about demand and supply. The channels become long only when such private information is valuable. In this article, we document the close link between wholesalers' private information and length of the marketing channel, based on analysis of panel data for five wholesale industries drawn from the last three decades of Japan's Census of Commerce. Specifically, we show that marketing channels tend to be longer--that is, they have more wholesale steps--where wholesalers tend to be in close geographic proximity to the final demanders, where wholesalers tend not to be organized into distribution keiretsu by manufacturers, where regional variation in demand tends to be idiosyncratic, where producers advertise less intensely and distributors advertise more intensely, and where the density and heterogeneity of retail outlets is greater. All of these are factors likely to be associated with the value of wholesalers' private information.