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Dealer and Manufacturer Margins

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  • Timothy F. Bresnahan
  • Peter C. Reiss

Abstract

When retail dealers carry only one product line, the size of the dealer margin is crucial in the success of both the manufacturer and the dealer. This article proposes a successive monopoly model of patterns in exclusive dealer and manufacturer margins across a product line. The predictions of the model then are compared with the pricing practices of a major U.S. automobile manufacturer and its dealers. The data support a special case of our theory. Our analysis also indicates that we cannot reject the hypothesis that the retail demand curves for these models are (locally) linear. Finally, we use the margin data to provide updated evidence on the extent to which retail prices depart from list price.

Suggested Citation

  • Timothy F. Bresnahan & Peter C. Reiss, 1985. "Dealer and Manufacturer Margins," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 253-268, Summer.
  • Handle: RePEc:rje:randje:v:16:y:1985:i:summer:p:253-268
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    References listed on IDEAS

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    Cited by:

    1. Gaudin, Germain, 2016. "Pass-through, vertical contracts, and bargains," Economics Letters, Elsevier, vol. 139(C), pages 1-4.
    2. Leng, Mingming & Zhu, An, 2009. "Side-payment contracts in two-person nonzero-sum supply chain games: Review, discussion and applications," European Journal of Operational Research, Elsevier, vol. 196(2), pages 600-618, July.
    3. Benjamin A. Olken & Patrick Barron, 2009. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 417-452, June.
    4. repec:pal:jorsoc:v:56:y:2005:i:11:d:10.1057_palgrave.jors.2601956 is not listed on IDEAS
    5. repec:pal:jorsoc:v:58:y:2007:i:4:d:10.1057_palgrave.jors.2602167 is not listed on IDEAS
    6. Adam Copeland & Wendy E. Dunn & George J. Hall, 2005. "Prices, production, and inventories over the automotive model year," Finance and Economics Discussion Series 2005-25, Board of Governors of the Federal Reserve System (U.S.).
    7. Stijn Ferrari & Frank Verboven, 2012. "Vertical control of a distribution network—an empirical analysis of magazines," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 26-50, March.
    8. Fouad El Ouardighi & Gary Erickson & Dieter Grass & Steffen Jørgensen, 2016. "Contracts and Information Structure in a Supply Chain with Operations and Marketing Interaction," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-36, December.
    9. Adachi, Takanori & Ebina, Takeshi, 2014. "Cost pass-through and inverse demand curvature in vertical relationships with upstream and downstream competition," Economics Letters, Elsevier, vol. 124(3), pages 465-468.
    10. repec:spr:cejnor:v:26:y:2018:i:1:d:10.1007_s10100-017-0474-y is not listed on IDEAS
    11. Maura P. Doyle, 1997. "The effects of interest rates and taxes on new car prices," Finance and Economics Discussion Series 1997-38, Board of Governors of the Federal Reserve System (U.S.).
    12. Walter A Cont, 2001. "Essays on Contract Design: Delegation and Agency Problems, and Monitoring Under Collusion," Levine's Working Paper Archive 625018000000000122, David K. Levine.
    13. Rebecca Hellerstein, 2005. "A Decomposition of the Sources of Incomplete Cross-Border Transmission," 2005 Meeting Papers 805, Society for Economic Dynamics.
    14. Rebecca Hellerstein & Sofia Berto Villas-Boas, 2006. "Arm's-length transactions as a source of incomplete cross-border transmission: the case of autos," Staff Reports 251, Federal Reserve Bank of New York.
    15. Huang, Kwei-Long & Kuo, Chia-Wei & Lu, Ming-Lun, 2014. "Wholesale price rebate vs. capacity expansion: The optimal strategy for seasonal products in a supply chain," European Journal of Operational Research, Elsevier, vol. 234(1), pages 77-85.
    16. Rebecca Hellerstein, 2004. "Who Bears the Cost of a Change in the Exchange Rate?," Econometric Society 2004 North American Summer Meetings 589, Econometric Society.
    17. El Ouardighi, Fouad & Kim, Bowon, 2010. "Supply quality management with wholesale price and revenue-sharing contracts under horizontal competition," European Journal of Operational Research, Elsevier, vol. 206(2), pages 329-340, October.
    18. Benoot, W. & Brueckner, J.K. & Proost, S., 2013. "Intercontinental-airport regulation," Transportation Research Part B: Methodological, Elsevier, vol. 52(C), pages 56-72.
    19. Ouardighi, Fouad El & Sim, Jeong Eun & Kim, Bowon, 2016. "Pollution accumulation and abatement policy in a supply chain," European Journal of Operational Research, Elsevier, vol. 248(3), pages 982-996.
    20. Vafa Arani, Hamed & Rabbani, Masoud & Rafiei, Hamed, 2016. "A revenue-sharing option contract toward coordination of supply chains," International Journal of Production Economics, Elsevier, vol. 178(C), pages 42-56.
    21. Goldberg, Pinelopi Koujianou, 1996. "Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 622-654, June.
    22. Lau, Amy Hing Ling & Lau, Hon-Shiang & Wang, Jian-Cai, 2008. "How a dominant retailer might design a purchase contract for a newsvendor-type product with price-sensitive demand," European Journal of Operational Research, Elsevier, vol. 190(2), pages 443-458, October.
    23. Rebecca Hellerstein, 2004. "Who bears the cost of a change in the exchange rate? The case of imported beer," Staff Reports 179, Federal Reserve Bank of New York.
    24. Duso, Tomaso & Szücs, Florian, 2017. "Market power and heterogeneous pass-through in German electricity retail," European Economic Review, Elsevier, vol. 98(C), pages 354-372.
    25. Adachi, Takanori & Ebina, Takeshi, 2014. "Double marginalization and cost pass-through: Weyl–Fabinger and Cowan meet Spengler and Bresnahan–Reiss," Economics Letters, Elsevier, vol. 122(2), pages 170-175.

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