Contract Design with a Dominant Retailer and a Competitive Fringe

Sreya Kolay () and Greg Shaffer ()
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Sreya Kolay: The Paul Merage School of Business, University of California, Irvine, Irvine, California 92697
Greg Shaffer: Simon School of Business, University of Rochester, Rochester, New York 14627

Management Science, 2013, vol. 59, issue 9, 2111-2116

Abstract: We show that under some conditions, quantity discounts and two-part tariffs are equivalent as mechanisms for channel coordination when an upstream firm sells its product in a downstream market that is characterized by a dominant retailer and a competitive fringe. We consider a setting in which discriminatory offers are feasible and a setting in which the same menu of options must be offered to all retailers. We find that the upstream firm's profit in both settings is independent of whether quantity discounts or two-part tariffs are used. The implication of this finding is that the firm's choice of contract design may turn on which one is easier to implement. This paper was accepted by J. Miguel Villas-Boas, marketing.

Keywords: marketing; channels of distribution; competitive strategy; pricing (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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