Single vs. cross distribution channels with manufacturers’ dynamic tacit collusion

Junsong Bian, Xuan Zhao and Yunchuan Liu

International Journal of Production Economics, 2020, vol. 220, issue C

Abstract: A manufacturer can choose to distribute its products through one retailer (single distribution) or across multiple retailers (cross distribution). In this paper, we develop a dynamic model to examine the interactions between two manufacturers' distribution channel strategies and their collusion incentives. Contrary to conventional wisdom, we find that single distribution does not always facilitate collusion between the manufacturers and that collusion is only facilitated when both adopt single distribution channels. In other words, an asymmetric cross-distribution channel structure helps to deter upstream collusion. Our results also suggest that retail mergers can hinder upstream collusion. Furthermore, we show that the equilibrium endogenous channel structures crucially depend on the discount factor of future cash flows and the relationship between the manufacturers' products (substitutes vs. complements). Specifically, when the products are highly substitutable, and manufacturers’ value of future cash flow is sufficiently low, the win-win equilibrium channel structure operated by the manufacturers comprises single distribution channels. However, such an equilibrium channel structure hurts consumers and social welfare when compared with cross-distribution channel structures. In all other instances, the win-win equilibrium structure chosen by the manufacturers yields cross-distribution channels, which also benefit consumers and social welfare.

Keywords: Distribution channel strategies; Supply chain management; Tacit collusion; Product differentiation; Game theory (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S092552731930266X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:220:y:2020:i:c:s092552731930266x

DOI: 10.1016/j.ijpe.2019.07.029

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().