Multichannel Distribution Strategy: Selling to a Competing Buyer with Limited Supplier Capacity

Zhibin (Ben) Yang (), Xinxin Hu (), Haresh Gurnani () and Huiqi Guan ()
Additional contact information
Zhibin (Ben) Yang: Lundquist College of Business, University of Oregon, Eugene, Oregon 97403
Xinxin Hu: College of Business, University of Houston–Downtown, Houston, Texas 77002
Haresh Gurnani: Center for Retail Innovation, School of Business, Wake Forest University, Winston-Salem, North Carolina 27106
Huiqi Guan: Department of Management, University of Miami, Coral Gables, Florida 33146

Management Science, 2018, vol. 64, issue 5, 2199-2218

Abstract: We study the optimal distribution strategy of a supplier with limited capacity. The supplier may adopt the supplier-only role, be the solo seller in the market, or use the dual-channel strategy and compete with its downstream buyer. In comparison to the case of unlimited capacity, we show that the supplier, the buyer, and consumers may all benefit from the supplier’s limited capacity at the same time, leading to a “win-win-win” outcome. We also find that, under limited capacity, the downstream buyer may order the supplier’s entire capacity and strategically withhold some supply from being sold to the market even if there is no underlying supply-side or demand-side uncertainty. Our result points to a new form of strategic purchasing behavior by the buyer in the face of upstream and downstream competition. Interestingly, we show that while buyer withholding is always beneficial for the supplier, it can reduce the buyer’s profit under certain cases, although total supply chain profit is the first-best outcome. Also, counter to conventional antitrust concerns, buyer withholding at times may benefit consumers in spite of reduced downstream competition. Finally, in contrast to intuition, we find that the supplier’s benefit from investing in direct selling capability is highest when its capacity size is moderate and not large.

Keywords: limited capacity; distribution channel structure; competition; game theory (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
https://doi.org/mnsc.2016.2702 (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:64:y:2018:i:5:p:2199-2218

Access Statistics for this article

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