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A manufacturer's incentive to open its direct channel and its impact on welfare

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  • Noriaki Matsushima
  • Tomomichi Mizuno
  • Cong Pan

Abstract

We consider a bilateral monopoly in which a manufacturer can open its direct channel that is less efficient than the existing retailer. We find the following results. The manufacturer opens its direct channel if its bargaining power over the existing retailer is weak. Opening the direct channel is detrimental to social welfare if this channel is efficient. Under a linear demand specification, if the equilibrium unit price under such opening is higher than that under no opening, the opening reduces social welfare under most of the parameter range of the efficiency of the manufacturer's direct channel.

Suggested Citation

  • Noriaki Matsushima & Tomomichi Mizuno & Cong Pan, 2018. "A manufacturer's incentive to open its direct channel and its impact on welfare," ISER Discussion Paper 1026, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:1026
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    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2018/DP1026.pdf
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    References listed on IDEAS

    as
    1. Noriaki Matsushima & Tomomichi Mizuno, 2018. "Supplier encroachment and retailer effort," ISER Discussion Paper 1027, Institute of Social and Economic Research, Osaka University.
    2. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    3. Cong Pan, 2018. "Supplier Encroachment and Consumer Welfare: Upstream Firm’s Opportunism and Multichannel Distribution," ISER Discussion Paper 1020, Institute of Social and Economic Research, Osaka University.
    4. Zhuoxin Li & Stephen M. Gilbert & Guoming Lai, 2015. "Supplier Encroachment as an Enhancement or a Hindrance to Nonlinear Pricing," Production and Operations Management, Production and Operations Management Society, vol. 24(1), pages 89-109, January.
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    8. Markus Reisinger & Emanuele Tarantino, 2015. "Vertical integration, foreclosure, and productive efficiency," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 461-479, September.
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    Cited by:

    1. Noriaki Matsushima & Tomomichi Mizuno, 2018. "Supplier encroachment and retailer effort," ISER Discussion Paper 1027, Institute of Social and Economic Research, Osaka University.
    2. Chrysovalantou Milliou & Konstantinos Serfes, 2023. "Supplier Encroachment with Mutual Outsourcing," CESifo Working Paper Series 10519, CESifo.

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