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Distribution Channel Strategies and Retailer Collusion in a Supply Chain with Multiple Retailers

Author

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  • Xiaona Zheng

    (Department of Management Science and Information Systems, Guanghua School of Management, Peking University, 5 Yiheyuan Road, Beijing 100871, P. R. China)

  • Luping Sun

    (Business School, Central University of Finance and Economics, 39 South College Road, Beijing 100081, P. R. China)

  • Andy A. Tsay

    (Operations Management & Information Systems (OMIS) Department, Leavey School of Business, Santa Clara University, 500 El Camino Real, Santa Clara, California 95053, United States)

Abstract

Previous literature suggests that without regulations firms have incentives to collude by fixing price or reducing quantity. This paper sets up an infinitely repeated game to examine the interplay between the manufacturer’s channel strategy and the downstream retailers’ collusive behavior. The results show that the manufacturer can deter retailer collusion by strategically changing its channel strategy. This effect occurs when the discount rate (used to calculate the present value of future profits) is relatively large and the manufacturer’s direct selling efficiency is relatively high (i.e., the variable cost of direct selling is relatively low). With the deterrence of direct selling, retailers abandon collusion and “no collusion” is a win-win strategy for both levels in the supply chain. However, when the manufacturer is not efficient in direct selling or the discount rate is small, direct selling is not effective in deterring retailer collusion and the manufacturer is worse off. These findings provide insights into channel strategies and supply chain management.

Suggested Citation

  • Xiaona Zheng & Luping Sun & Andy A. Tsay, 2018. "Distribution Channel Strategies and Retailer Collusion in a Supply Chain with Multiple Retailers," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 35(03), pages 1-27, June.
    • Handle: RePEc:wsi:apjorx:v:35:y:2018:i:03:n:s0217595918500148
    DOI: 10.1142/S0217595918500148
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    References listed on IDEAS

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    Cited by:

    1. Wang, Qifei & Hong, Xianpei & Gong, Yeming (Yale) & Chen, Wanying (Amanda), 2020. "Collusion or Not: The optimal choice of competing retailers in a closed-loop supply chain," International Journal of Production Economics, Elsevier, vol. 225(C).

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