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Strategic Choice of Channel Structure in an Oligopoly

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Abstract

The traditional wisdom holds that the benefits of a decentralized channel structure arise fromdownstream competitive relationships. In contrast, Arya and Mittendorf (2007) showed that the value of decentralization can also arise from upstream interaction when the downstream firm conveys internal strife (decentralization) to an upstream external supplier. This paper extends the single firm centralization-decentralization choice model of Arya and Mittendorf (2007) to a strategic choice model in which all downstream competitors play a strategic centralization-decentralization game. We demonstrate that whether the main conclusions in the context of non-strategic choice of channel structure continue to hold when all firms play a centralization-decentralization game depends critically on the market structure of the upstream input market. Specifically, the conclusions are valid if all firms have exclusive upstream input suppliers but not so if the upstream input market is monopolized. Thus, whether the value of decentralization can arise from upstream interaction depends critically on the market structure of the upstream market.

Suggested Citation

  • X. Henry Wang & Lin Liu & JBill Z. Yang, 2011. "Strategic Choice of Channel Structure in an Oligopoly," Working Papers 1102, Department of Economics, University of Missouri.
  • Handle: RePEc:umc:wpaper:1102
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    File URL: https://economics.missouri.edu/working-papers/2011/wp1102_wang.pdf
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    References listed on IDEAS

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    1. Mark Armstrong & John Vickers & Jidong Zhou, 2009. "Prominence and consumer search," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 209-233.
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    Cited by:

    1. Pu-yan Nie & Peng Sun & Bill Z. Yang, 2014. "A Dynamic Study on Ecological Disaster, Government Regulation, and Renewable Resources," American Journal of Economics and Sociology, Wiley Blackwell, vol. 73(2), pages 410-442, April.
    2. Nie, Pu-yan, 2013. "Duopoly quality commitment," Economic Modelling, Elsevier, vol. 33(C), pages 832-842.
    3. Nie, Pu-Yan & Yang, Yong-Cong, 2015. "Cost-reduction innovation under mixed economy," Economics Discussion Papers 2015-68, Kiel Institute for the World Economy (IfW).
    4. Pu-yan Nie, 2014. "Effects of capacity constraints on mixed duopoly," Journal of Economics, Springer, vol. 112(3), pages 283-294, July.

    More about this item

    Keywords

    Strategic Choice; Channel Structure; Oligopoly;

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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