Implicit Understandings in Channels of Distribution

Steven M. Shugan
Additional contact information
Steven M. Shugan: Graduate School of Business, University of Chicago, Chicago, Illinois 60637

Management Science, 1985, vol. 31, issue 4, 435-460

Abstract: Formal agreements can be used to achieve coordination among channel members. These agreements work by exerting explicit control over the members who make the agreements. However, implicit understandings can be used as a partial substitute for more formal agreements. In this paper, we show that implicit understandings can develop as channel members learn about each other's behavior. We show that ... --This learning leads to the use of the implicit influence each channel member has over the other's behavior. -- The learning leading to an implicit understanding requires some form of experimentation or historical observation. -- This learning results in an oscillating retail price. -- When only one channel member learns the other's behavior, both channel members obtain greater profits than when neither member learns, and both channel members obtain less profits than when both members learn. However, the member who does not learn obtains more profits than the member who learns. We also show that ... -- Implicit understandings result in greater channel profits than in their absence. -- Implicit understandings cannot fully substitute for an explicit contract. -- Implicit understandings result in a retail price which is higher than the price resulting from an explicit contract but lower than the price resulting in the absence of an implicit understanding. -- Implicit understandings develop as channel members learn each other's behavior. We demonstrate that the form of learning discussed in this paper is consistent with a somewhat general demand function. Finally, the paper provides some examples of both symmetrical learning, where both channel members learn at the same speed and asymmetrical learning where channel members learn at different speeds.

Keywords: marketing channels; bilateral monopoly; noncooperative games; rational expectations (search for similar items in EconPapers)
Date: 1985
References: Add references at CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.31.4.435 (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:ormnsc:v:31:y:1985:i:4:p:435-460

Access Statistics for this article

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