Strategic Choice of Channel Structure in an Oligopoly

X. Wang (), Lin Liu and Bill Yang

No 1102, Working Papers from Department of Economics, University of Missouri

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.

Keywords: Strategic Choice; Channel Structure; Oligopoly (search for similar items in EconPapers)
JEL-codes: D21 L22 (search for similar items in EconPapers)
Pages: 42 pgs.
Date: 2011-03-09
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Managerial and Decision Economics 201

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