On Credible Delegation by Oligopolists: A Discussion of Distribution Channel Management

Anne T. Coughlan and Birger Wernerfelt
Additional contact information
Anne T. Coughlan: J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60208

Management Science, 1989, vol. 35, issue 2, 226-239

Abstract: Several papers in the recent marketing literature have suggested that delegation in distribution (e.g., the use of independent middlemen) helps manufacturers to precommit strategically to profit-enhancing competitive actions. Further, the literature suggests that the profitability of such actions depends on market structure. We challenge these conclusions here. This is done in two steps. First, we perform an analysis of the entire class of models which have been used in the literature. Using internally consistent assumptions about market structure and contracting, the only subgame perfect equilibrium is one in which all distribution channels have infinitely many levels of delegation. Obviously, this is not what we see in the real world. Next, we relax a key hidden assumption, namely that all intra-channel agreements are observable to competitors. Without this assumption, the usual results unravel. Unless channel members can offer credible guarantees that unobservable agreements do not exist, the strategic effects of delegation disappear. Since these guarantees are virtually impossible to maintain credibly, we would expect to reject the hypothesis in the earlier literature relating channel structure to competition in an empirical study controlling for observability. We conclude that mechanisms other than strategic ones must be responsible for the existence of delegated channels, and make some suggestions about promising avenues for future theory research in channel structure.

Keywords: marketing; distribution (search for similar items in EconPapers)
Date: 1989
References: Add references at CitEc
Citations: View citations in EconPapers (91)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.35.2.226 (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:35:y:1989:i:2:p:226-239

Access Statistics for this article

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