EconPapers    
Economics at your fingertips  
 

Direct-to-Consumer sales by manufacturers and bargaining

Javier Donna, Pedro Pereira, Andre Trindade and Renan Yoshida
Additional contact information
Renan Yoshida: Stanford Uiversity

No 69, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: Cutting out the intermediary and selling directly to consumers is an increasingly common strategy by manufacturers in many industries. We develop a structural model of vertical relations where manufacturers both bargain with retailers over wholesale prices and sell their products directly to consumers. We show that direct sales by manufacturers generate two effects that have opposing impact on welfare. First, direct sales generate potential welfare gains to consumers downstream due to additional competition and product variety. Second, in the upstream, there is an increase in the bargaining leverage of the manufacturers selling directly to consumers. Negotiated wholesale prices increase, thus increasing final prices to consumers and decreasing consumer welfare. We show how our model can be used to quantify the bargaining leverage and welfare effects of direct sales. We estimate our model using data from the outdoor advertising industry and use the estimated model to simulate counterfactual scenarios to isolate these effects. We conclude by discussing the relevance of the bargaining leverage effect for vertical merger evaluation.

Keywords: Direct-to-consumer sales; bargaining; vertical mergers; advertising (search for similar items in EconPapers)
JEL-codes: D43 L13 L42 L51 L81 M37 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2021-05
New Economics Papers: this item is included in nep-com and nep-gth
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://rednie.eco.unc.edu.ar/files/DT/69.pdf (application/pdf)

Related works:
Working Paper: Direct-to-Consumer Sales by Manufacturers and Bargaining (2020) Downloads
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:aoz:wpaper:69

Access Statistics for this paper

More papers in Working Papers from Red Nacional de Investigadores en Economía (RedNIE) Contact information at EDIRC.
Bibliographic data for series maintained by Laura Inés D Amato ().

 
Page updated 2022-01-09
Handle: RePEc:aoz:wpaper:69