/pdf/the-theory-of-industrial-organization-19bejph0ej.pdf

The Theory of Industrial Organization

This paper shows that the effect of different distribution channel structures on product quality depends on the type of consumer heterogeneity and its distribution in a market. When consumer heterogeneity is uniformly distributed either vertically on willingness to pay or horizontally on transaction costs, a manufacturer may provide the same or lower product quality in a decentralized channel than in a centralized channel. In contrast, when consumer heterogeneity follows a more general distribution on willingness to pay, under certain conditions, the manufacturer may provide higher product quality in a decentralized channel than in a centralized channel. Decentralization also may lead to a higher product quality if consumer heterogeneity is uniformly distributed both vertically and horizontally, but not if consumer heterogeneity is uniformly distributed vertically on each of two product-quality attributes. Additionally, competition at the retail level may amplify these findings. This paper was accepted by...

Consumer heterogeneity, product quality, and distribution channels

It is conventional wisdom that a manufacturer's encroachment into retail space will likely hurt an existing retailer. In contrast to this conventional belief, current research indicates that a retailer may welcome a manufacturer's encroachment despite the new competition in the final market. The encroachment may help the manufacturer have some 'skin in the game' at the retail level, which will cause the manufacturer to make a selfish cost-reducing investment that spills over to the retailer as a lower wholesale price. Such a spillover effect enhances the retailer's profit as long as the encroachment does not result in extreme retail competition by a certain degree of product differentiation, and ultimately generates Pareto gains in the supply chain. The spillover effect is so robust that the retailer's benefit from the encroachment remains even after considering potential mitigating factors such as selling costs, a nonlinear form of cost reduction, decentralized encroachment, additional retail competition, price competition, and a negotiation between the manufacturer and the retailer. [ABSTRACT FROM AUTHOR]

Supplier Encroachment and Investment Spillovers

Cold chain transportation decision in the vaccine supply chain

With the advance of platform technologies, peer-to-peer collaborative consumption (P2P-CC) is getting very popular for fashion products in the sharing economy. With this arrangement, one important implication to consumers is that the fashion product’s value seems to be larger with P2P-CC than without. Motivated by the observed industrial practice on P2P-CC for fashion products, we construct stylized models and conduct an analytical study in this paper. We analytically prove that comparing between the operations with and without P2P-CC, the presence of P2P-CC always benefits the fashion brand (i.e. the firm) as well as the consumers who buy the product. For the relative benefits brought by P2P-CC between the firm and consumers, we prove that the firm’s expected profit is double compared to the consumers under the case without P2P-CC. However, this proportion is smaller under the case with P2P-CC. Regarding the platform, we find that it is beneficial for the platform to adopt the revenue sharing scheme, instead of the fixed service charging scheme, even though adopting either one does not change the qualitative conclusion on the benefits of P2P-CC. To check the robustness of results, we extend the model and conduct further analysis to highlight the impacts brought by the fashion brand’s advertisement decisions, the presence of different consumer segments, and the probable service delivery charge. We uncover that the main derived conclusion remains true in all these extensions. Managerial implications are then discussed.

Peer-to-peer collaborative consumption for fashion products in the sharing economy: Platform operations

Contract and product quality in platform selling

This paper studies manufacturer encroachment in a supply chain wherein the manufacturer and/or the retailer should invest in informative advertising. Using a game-theoretic framework, we explore three schemes of advertising and their influences on manufacturer encroachment. First, if the manufacturer controls advertising, encroachment will result in higher advertising intensity relative to the non-encroachment case, sometimes leading to a win-win situation for both the manufacturer and the retailer as the boosted demand flows into the wholesale market under encroachment. Second, if the retailer controls advertising, an encroaching manufacturer should further reduce the wholesale price as compared to the counterpart with no advertising. This downward pressure on wholesale price can benefit the retailer, but might hurt the encroaching manufacturer. Third, we incorporate manufacturer advertising and retailer advertising into a cooperative advertising scheme, where the manufacturer can set a participation rate to adjust the advertising cost for the retailer. Interestingly, an encroaching manufacturer will pay the retailer more to subsidize his advertising cost. Under this scheme, the manufacturer is always better off under encroachment, and the retailer can also gain as a result of advertising cost-sharing from the manufacturer. Our results also apply to the case of persuasive advertising. Although persuasive advertising leads to different prices or advertising decisions, there are always chances for the retailer to benefit from manufacturer encroachment.

Manufacturer encroachment with advertising

The benefits of consumer rebates: A strategy for gray market deterrence

Gray market occurs when a product is diverted from a market to another without the authorisation of the manufacturer. Conventional wisdom believes that (a) the manufacturer should increase product ...

Gray market's product quality in the circular economy era

Informative advertising and persuasive advertising play quite different roles in the efficiency of distribution channels. A recent study observes that a direct channel structure outperforms an indirect one in the presence of advertising competition between manufacturers, assuming that advertising is persuasive. On the contrary, taking the informative view of advertising, this paper demonstrates an opposite result: Disintegration does make competing manufacturers better off for highly substitutable goods. We further discuss the optimum control of informative advertising under the indirect channel scenario, showing that retailers are more effective than manufacturers as advertisers.

Jianqiang Zhang

Papers

Contract and product quality in platform selling

Manufacturer encroachment with advertising

The benefits of consumer rebates: A strategy for gray market deterrence

Gray market's product quality in the circular economy era

Competitive effects of informative advertising in distribution channels