Understanding Dual Distribution: The Case of Reps and House Accounts

Plural distribution systems are often found in industrial markets. Although transaction cost analysis has been successfully applied to understanding decisions about distribution systems, these plural forms have been virtually ignored in extant empirical work. Critics suggest that extant transaction cost models are inadequate to study these systems. We contend that transaction cost reasoning can be readily applied to understanding these systems, and undertake an analysis of a common plural form, namely, the simultaneous use of an independent rep system with a company-operated, "house account" system. Familiar transaction cost problems like lock-in (the safeguarding problem), and difficulties in evaluating an independent rep's performance (the behavioral uncertainty problem) are posited to lead firms to deploying house accounts to augment an independent rep system. Using data from a survey of independent agents, we provide preliminary evidence for these predictions. We discuss the implications of our findings for theory and practice. Coauthors are Mark Bergen, Jan B. Heide, and George John. Copyright 1995 by Oxford University Press.