The Impact of Product Differentiation on the Channel Structure in a Manufacturer-Driven Supply Chain

Angelika Endres-Fröhlich ()
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Angelika Endres-Fröhlich: Paderborn University

No 92, Working Papers Dissertations from Paderborn University, Faculty of Business Administration and Economics

Abstract: We study the impact of product differentiation on different distribution systems in a supply chain. Our market is characterized by an asymmetric supply chain with two retailers and three manufacturers that each produce one differentiated good. We determine that a non-exclusive distribution system is a Nash equilibrium for all degrees of product differentiation between the three goods. Furthermore, we assess the welfare implications of various distribution systems. We identify that the non-exclusive equilibrium channel structure provides the highest social welfare and highest consumer surplus for all degrees of product differentiation. Aside from that, we find a strong incentive for the manufacturers to form an exclusive selling cartel for close substitutes, which would cause a Pareto improvement for all firms but harm overall welfare.

Keywords: product differentiation; endogenous markets; supply chains (search for similar items in EconPapers)
JEL-codes: D21 D47 L22 (search for similar items in EconPapers)
Pages: 59
Date: 2022-04
New Economics Papers: this item is included in nep-com and nep-gth
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