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Channel Performance and Incentives for Retail Cost Misrepresentation

  • Rabah Amir
  • Thierry Leiber
  • Isabelle Maret

This paper investigates the price decision making and channel performance under cost misrepresentation at the retail stage. In the standard double marginalization game, we introduce a preliminary stage, where the retailer can misrepresent her constant marginal cost. We give respective sufficient conditions on the demand function for the retailer to misrepresent her marginal cost downwards and upwards. In contrast to the literature, we prove that the opportunistic behavior of the retailer does not necessarily lower channel performance and social welfare. Indeed, a downward misrepresentation of the retail cost, which one obtains when the price elasticity of demand is not very price elastic, increases channel performance and social welfare. Illustrative examples using common specifications of demand are provided.

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File URL: http://www.beta-umr7522.fr/productions/publications/2006/2006-20.pdf
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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2006-20.

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Date of creation: 2006
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Handle: RePEc:ulp:sbbeta:2006-20
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  1. Rabah AMIR & Isabelle MARET & Michael TROEGE, 2004. "On Taxation Pass-Through for a Monopoly Firm," Annales d'Economie et de Statistique, ENSAE, issue 75-76, pages 155-172.
  2. Amir, Rabah, 1996. "Sensitivity analysis of multisector optimal economic dynamics," Journal of Mathematical Economics, Elsevier, vol. 25(1), pages 123-141.
  3. Gérard P. Cachon & Marshall Fisher, 2000. "Supply Chain Inventory Management and the Value of Shared Information," Management Science, INFORMS, vol. 46(8), pages 1032-1048, August.
  4. Nicolaj Siggelkow, 2002. "Misperceiving Interactions Among Complements and Substitutes: Organizational Consequences," Management Science, INFORMS, vol. 48(7), pages 900-916, July.
  5. Wujin Chu, 1992. "Demand Signalling and Screening in Channels of Distribution," Marketing Science, INFORMS, vol. 11(4), pages 327-347.
  6. Patrick Rey & Jean Tirole, 1985. "The Logic of Vertical Restraints," Working papers 396, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Paul R. Messinger & Chakravarthi Narasimhan, 1995. "Has Power Shifted in the Grocery Channel?," Marketing Science, INFORMS, vol. 14(2), pages 189-223.
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