Demand Signalling and Screening in Channels of Distribution

Wujin Chu
Additional contact information
Wujin Chu: Massachusetts Institute of Technology

Marketing Science, 1992, vol. 11, issue 4, 327-347

Abstract: This paper examines two ways channel members at the manufacturing and retail ends deal with asymmetric information in the context of new product introduction. A manufacturer who has private information that demand for a new product will be high can differentiate itself from a manufacturer less confident of demand by undertaking high levels of pre-launch advertising and offering a high wholesale price. A retailer, for its part, can screen potentially high demand from potentially low demand products by stipulating a take-it-or-leave-it slotting allowance, the assumption being that the offer will be accepted only by manufacturers confident of sufficient demand to recover the high initial cost of slotting allowances. It is shown that manufacturers prefer to signal demand through advance advertising and wholesale price, retailers to screen demand through slotting allowances. It is shown that, unless advance advertising is sufficiently effective, slotting allowances yield higher total channel profits and higher social welfare.

Keywords: distribution channels; signalling; screening; slotting allowances; asymmetric information (search for similar items in EconPapers)
Date: 1992
References: Add references at CitEc
Citations: View citations in EconPapers (85)

Downloads: (external link)
http://dx.doi.org/10.1287/mksc.11.4.327 (application/pdf)

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:inm:ormksc:v:11:y:1992:i:4:p:327-347

Access Statistics for this article

More articles in Marketing Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().