The Bright Side of Supplier Encroachment

Anil Arya (), Brian Mittendorf () and David Sappington
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Anil Arya: The Ohio State University, Fisher College of Business, 2100 Neil Avenue, Columbus, Ohio 43210
Brian Mittendorf: Yale School of Management, 135 Prospect Street, New Haven, Connecticut 06520

Marketing Science, 2007, vol. 26, issue 5, 651-659

Abstract: The common wisdom is that a retailer suffers when its wholesale supplier encroaches on the retailer's operations by selling directly to final consumers. We demonstrate that the retailer can benefit from encroachment even when encroachment admits no synergies and does not facilitate product differentiation or price discrimination. The retailer benefits because encroachment induces the encroaching supplier to reduce the wholesale price in order not to diminish unduly the retailer's demand for the manufacturer's wholesale product. The lower wholesale price and increased downstream competition mitigate double marginalization problems and promote efficiency gains that can secure Pareto improvements.

Keywords: channels of distribution; encroachment; market entry; retailing and wholesaling (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (200)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:26:y:2007:i:5:p:651-659

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