price dependent profit sharing as a channel coordination device we show how an upstream firm by using a price dependent profit sharing rule can prevent destructive competition between downstream firms that produce relatively close substitutes with this rule the upstream firm induces the retailers to behave as if demand has become less price elastic as a result competing downstream firms will maximize aggregate total channel profit when downstream firms are better informed about demand conditions than the upstream firm the same outcome cannot be achieved by vertical restraints such as resale price maintenance price dependent profit sharing may also ensure that the downstream firms undertake efficient market expanding investments the model is consistent with observations from the market for content commodities distributed by mobile networks

signaling quality with a money back guarantee the role of transaction costs direct marketing is witnessing explosive growth as consumers increasingly purchase products from their homes their ability to judge the quality of products they buy is significantly reduced in this paper we study how money back guarantees can signal product quality in such environments we interpret product quality broadly to mean both the level of attributes promised as well as the firm s consistency in delivering on those promises key aspects of our formulation are the explicit consideration of transaction costs and alternative signals of product quality transaction costs are the costs the seller or buyer faces when redeeming a money back guarantee we show that money back guarantees signal quality by exploiting the higher probability of returns for a lower quality product and the attendant higher transaction costs however if the seller s transaction costs are very large then there are less costly ways to signal namely charging a high price we compare the signaling performance of 1 price 2 price with uninformative advertising and 3 price with a money back guarantee whereas uninformative advertising does not work at all in our model under certain conditions a money back guarantee is necessary to signal and under other conditions a money back guarantee is a useful supplement to price

implicit understandings in channels of distribution formal agreements can be used to achieve coordination among channel members these agreements work by exerting explicit control over the members who make the agreements however implicit understandings can be used as a partial substitute for more formal agreements in this paper we show that implicit understandings can develop as channel members learn about each other s behavior we show that this learning leads to the use of the implicit influence each channel member has over the other s behavior the learning leading to an implicit understanding requires some form of experimentation or historical observation this learning results in an oscillating retail price when only one channel member learns the other s behavior both channel members obtain greater profits than when neither member learns and both channel members obtain less profits than when both members learn however the member who does not learn obtains more profits than the member who learns we also show that implicit understandings r

rent seeking activities and the brain gain effects of migration this paper studies migration and rent seeking activities in a framework of heterogeneous ability it is shown that despite the depletion of productive resources known as the brain drain the possibility of migration could sufficiently reduce participation in rent seeking activities and increase participation in productive activities such that the net effect of migration is a brain gain moreover the possibility of migration that sufficiently enlarges the relative reward to ability in the productive sector could result in qualitative improvements in the allocation of talent ce memoire etudie la migration et les activites de chasse aux rentes dans un monde ou les habiletes sont heterogenes on montre que malgre la perte de ressources productives que constitue la perte de cerveaux il se peut que la migration puisse suffisamment reduire la participation aux activites de chasse aux rentes et accroitre la participation aux activites productives pour que l effet net de la migration soit un gain de cerveaux de plus il se peut que la migration augmente suffisamment la recompense des habiletes dans le secteur productif qu il puisse en resulter des ameliorations qualitatives dans l allocation des talents

residential consumers in the cape peninsula s willingness to pay for premium priced green electricity a number of studies have explored the willingness i e stated willingness as opposed to actual willingness of consumers to pay a premium for green electricity in developed countries however little is known about how this translates into an emerging economy context this study investigates the level of willingness of residential households in south africa s cape peninsula to pay a premium for electricity from renewable energy it methodologically drew on recent contributions in the literature on norm motivated behaviour used to identify testable factors that could influence residential consumers willingness to pay wtp interestingly the study found a significant positive link between household income and wtp for green electricity contrary to the findings of some previous studies not only are higher income households more likely to pay a premium but typically they are also willing to pay a bigger premium it was also further established that the view that green electricity is reliable involvement in the recycling of waste and the belief that everyone should contribute to green electricity generation drive the wtp

failure fee under stochastic demand and information asymmetry abstract we study a failure fee contract designed by a price setting newsvendor retailer under information asymmetry under the contract the manufacturer must pay the retailer a failure fee if the sales volume misses a target we propose and compare two types of failure fee contracts a brand by brand contract and a uniform contract we find that the retailer prefers one to the other depending on parameters

making sense of nonbinding retail price recommendations we model retail price recommendations rprs as a communication device in vertical supply relations with private manufacturer information on production costs and consumer demand with static trade rprs are irrelevant and the equilibrium outcome is inefficient with repeated trade rprs can become part of a relational contract communicating private information from manufacturer to retailer that is indispensable for maximizing joint surplus we show that this contract is self enforcing if the retailer s profit is independent of production costs and punishment strategies are chosen appropriately the predictions of our analysis are consistent with the available empirical evidence

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

the effects of information transparency on suppliers manufacturers and consumers in online markets this paper looks into the effects of information transparency on market participants in an online trading environment we study these effects in business to business electronic markets with firms competing in both upstream and downstream industries the prior literature generally assumes that either the downstream firm buyer or the upstream firm seller is a monopoly it is not clear whether information transparency would still create value if both buyers and sellers face oligopolistic competition where the benefits of information transparency could be competed away to answer this question we first develop a simple two echelon e market model and then extend the model to more general settings we find that information transparency can create value for the overall e market yet it affects buyers and sellers very differently one side will be hurt depending on the competition mode cournot or bertrand in the downstream this suggests that a manufacturer owned a supplier owned and a neutral e market will have different preferences for information transparency finally we find that information transparency can hurt consumers when the downstream industry engages in bertrand competition this is a surprising result given the expectation that online markets create substantial value for consumers

marketing information a competitive analysis selling information that is later used in decision making constitutes an increasingly important business in modern economies jensen jensen fred o 1991 information services congram friedman eds the ama handbook of marketing for the service industries chapter 22 ama com new york 423 443 information is sold under a large variety of forms industry reports consulting services database access and or professional opinions given by medical engineering accounting financial and legal professionals among others this paper is the first attempt in marketing to study competition in the rapidly emerging information sector specifically we are interested in answering the following questions 1 is competition fundamentally different when competing firms sell information rather than traditional goods and services and if yes why 2 what are the implications of such differences for decision makers marketers and regulators 3 can we explain some of the observed marketing strategies in the information industry as such the audience of the paper includes academics as well as professionals who are interested in understanding what is specific about competition in information markets familiarity with the practical implications of such differences and understanding of the mechanisms that drive them is essential for those who are faced with the problem of marketing information to answer the above research questions we build a simple game theoretic model that consists of two firms selling information to a population of consumers who are heterogeneous in their willingness to pay for the quality of information the most important features of the model are the following information products sold by the two firms are modeled as random draws from two normal distributions having equal mean the variances of these distributions and their correlatedness constitute the product attribute space which is assumed to be common knowledge consumers are interested in assessing the mean of the distributions and to do so they can buy the sample from any of the firms or they can buy both samples and combine them to obtain a more accurate estimate quality of information is linked to the accuracy of consumers estimate of the mean which in turn is influenced by the accuracy of each sample as well as by their correlatedness consumers utility depends on the quality of information they purchased on their inherent utility for quality taste and on the total price they paid to acquire information knowing consumer preferences firms simultaneously price their information products the main finding of the paper is that information markets face unique competitive structures in particular the qualitative nature of competition changes depending on basic product characteristics while traditional products and services compete either as substitutes or as complements in the relevant product attribute space information may be one or the other depending on its position within the same product attribute space said differently the nature of competition changes qualitatively with a continuous change in basic product attribute levels the intuition behind this finding is the following when purchasing information consumers facing important decisions may find it beneficial to purchase from several information sellers this is more likely to happen when the reliability of information is low and the sources of information are independent under such conditions information products tend to be complements and as a result competition between sellers is relatively mild in the opposite case when information is reliable and or sellers sources are highly correlated consumers are satisfied after consulting a single source in this case information products are substitutes and sellers tend to undercut one another s prices to induce consumers to choose their brand understanding this discontinuity in competitive structures has important implications for decision makers as very different strategies are optimal under different product characteristics under substitution traditional strategies to avoid competition e g differentiation are recommended when the competing products reliability is generally low they are complements firms are better off accommodating competition in fact we find that a firm may benefit from inviting a competitor finally our findings are also important for regulators of information markets as the literature on complementarity suggests price fixing agreements between firms offering complementary products may benefit firms as well as consumers

oligopoly limit pricing we expand milgrom and roberts 1982 limit pricing model to allow for multiple incumbents each incumbent is informed as to the level of an industry cost parameter and selects a preentry price while a single entrant observes each incumbent s preentry price we find that incumbents are unable to coordinate deception which results in a separating equilibrium in which preentry prices are not distorted further introducing the refinement of unprejudiced beliefs we show that the no distortion equilibrium is the only refined separating equilibrium plausible pooling equilibria fail to exist or involve downward distortions in preentry prices

competitor orientation and the evolution of business markets competitor orientation i e the focus on beating the competition rather than maximizing profits seems to thrive in business situations despite being by definition suboptimal for profit maximizing firms our research explains how a competitor orientation can persist and even thrive in equilibrium in markets that reward only profits we apply evolutionary game theory to business markets where reputation matters we use three games that represent classic interactions in business marketing chicken to illustrate competition for product adoption the battle of the sexes channel negotiations and the prisoners dilemma pricing battles initial populations are assumed to have both profit maximizing managers and competitor oriented managers i e those who gain additional utility from beating others we demonstrate that a competitor orientation can survive in equilibrium despite selection that is based solely on profits using chicken we show that a competitor orientation thrives and can even overrun the population we use the battle of the sexes to show that a competitor orientation will overrun one population in a two sided negotiation e g all retailers in a retailer manufacturer dyad last using the prisoners dilemma we show that competitor orientation is not selected against we conclude that evolutionary profit driven selection pressures cannot be assumed to eliminate nonprofit maximizing behavior even when selection is based purely on profitability

cheap talk and bogus network externalities in the emerging technology market many emerging technologies exhibit path dependent demands driven by positive network feedback such network effects profoundly impact marketing strategists thinking in today s network economy however the significant network externalities expected by many people often fail to materialize in the emerging technology market we analyze this phenomenon in the context of a technology distribution channel by studying cheap talk strategies under information asymmetry we show that incentive compatible contracts are essential for achieving credible information transmission in our model the better informed technology vendor has an incentive to inflate the retailer s ex ante belief of network externalities when a wholesale price contract is adopted when properly termed revenue sharing contracts are implemented there are information efficient cheap talk equilibria where truthful information transmission is mutually beneficial when the vendor s information is imperfect even revenue sharing contracts cannot guarantee credible information transmission if there is significant prior belief disparity between the vendor and the retailer this study demonstrates how information inefficient equilibria e g information blockage arise because of the conflict of interest or the conflict of opinion among channel members it also explores the role of cheap talk in facilitating channel coordination

purchasing under asymmetric demand and cost information when is more private information better we study a supply chain consisting of one supplier and one oem original equipment manufacturer the oem faces stochastic demand for a final product that requires assembly of two major components one of which is procured exclusively from the supplier in the absence of competition the supplier is able to make a take it or leave it offer to the oem in the form of a menu of price quantity contracts the oem possesses private information across two dimensions 1 demand forecasts about the final product and 2 production cost of the in house component both pieces of information are relevant to the total supply chain profit thus affecting the supplier s optimal offer by initially assuming an exogenous information structure we characterize the supplier s optimal contract menu for a simple case and demonstrate that more dimensions of asymmetric information are not always preferable for the oem but could be beneficial for the supply chain we subsequently examine whether this preference for one less dimension of private information implies disclosure of private information to the supplier when the information structure is endogenized our results indicate that if oems that are indifferent between disclosing and keeping information private choose to disclose it disclosure of any verifiable information from all oems is always an equilibrium whereas nondisclosure might fail to be an equilibrium we also consider the possibility of the oem and the supplier contracting at the ex ante stage i e before the oem observes his private information when both dimensions of the oem s private information are verifiable and the cost of disclosing information is small enough an ex ante agreement on information disclosure is always possible otherwise its feasibility depends on the problem parameters

brain drain and economic growth theory and evidence we focus on the impact of migration prospects on human capital formation and growth in a small open developing economy we assume that agents are heterogeneous in skills and take their educational decisions in a context of uncertainty regarding future migrations we distinguish two growth effects an ex ante brain effect migration prospects foster investments in education because of higher returns abroad and an ex post drain effect because of actual migration flows the case for a beneficial brain drain bbd emerges when the first effect dominates i e when the average level of human capital is higher in the economy opened to migrations than in the closed economy we derive the theoretical conditions required for such a possibility to be observed using cross section data for 37 developing countries we find that the possibility of a bbd could be more than a theoretical curiosity

advertising in a distribution channel conventional wisdom suggests that one of the goals of manufacturer advertising is to reduce the cross price elasticity between products make one s own and rivals products appear to be less substitutable in the eyes of consumers conventional wisdom also suggests that all else being equal retailers will be able to obtain better terms of trade from manufacturers the more substitutable are the manufacturers products it follows that retailers should be opposed to advertising that has the effect of reducing cross price elasticities and thus that manufacturer advertising can be a source of channel conflict we show that these conventional wisdoms need not hold when only some consumers are exposed to the advertising messages using a hotelling model of demand we show that 1 manufacturers can be worse off from advertising that reduces the cross price elasticities between their products 2 channel conflict need not arise even when the sole purpose of advertising is to affect cross price elasticities and 3 depending on its bargaining power a retailer can be better off when the manufacturers products are perceived to be less substitutable

do slotting allowances harm retail competition slotting allowances are fees paid by manufacturers to get access to retailers shelf space both in the usa and europe the use of slotting allowances has attracted attention in the general press as well as among policy makers and economists one school of thought claims that slotting allowances are efficiency enhancing while another school of thought maintains that slotting allowances are used in an anti competitive manner in this paper we argue that this controversy is partially caused by inadequate assumptions of how the retail market is structured and organized using a formal model we show that there are good reasons to expect anti competitive effects of slotting allowances we further point out that competi tion authorities tend to use an unsatisfactory basis for comparison when analyzing welfare consequences of slotting allowances

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

the price of launching a new product empirical evidence on factors affecting the relative magnitude of slotting allowances slotting allowances are a relatively recent trend particular to the retail food industry these allowances are lump sum up front transfer payments from manufacturer to retailer when the manufacturer launches a new product the practice has attracted some scrutiny because of uncertainty about its purposes and consequences we draw from the extant literature to identify factors that potentially influence the relative magnitude of slotting allowances based on analysis of primary survey data from retailers and manufacturers we observe that charging and paying of slotting allowances are affected by the relative strength of the players among retailers the relative magnitude of slotting fees increases with retailers informational advantage over the manufacturer about the likely success of the new product even when retailers recognize that the product is likely to be successful additionally and consistent with the first finding retailers with lower costs i e potentially more efficient and powerful retailers received higher slotting allowances furthermore retailers charge higher slotting fees even when concerns about manufacturers fulfilling postlaunch advertising commitments are minimal implying that relatively powerless manufacturers are asked to provide credible commitments regarding postlaunch activitiesand are asked to pay relatively high slotting fees among manufacturers the relative magnitude of slotting fees paid is lower for those who have a strong market share position we discuss the theoretical managerial and public policy implications of our findings

auctioning supply contracts this paper studies a procurement problem with one buyer and multiple potential suppliers who hold private information about their own production costs both the purchase quantity and the price need to be determined an optimal procurement strategy for the buyer requires the buyer to first design a supply contract that specifies a payment for each possible purchase quantity and then invites the suppliers to bid for this contract the auction can be conducted in many formats such as the english auction the dutch auction the first priced sealed bid auction and the vickrey auction the winner is the supplier with the highest bid and is given the decision right for the quantity produced and delivered applying this theory to a newsvendor model with supply side competition this paper establishes a connection between the above optimal procurement strategy and a common practice in the retail industry namely the use of slotting allowances and vendor managed inventory also discussed in the newsvendor context are the role of well known supply contracts such as returns contracts and revenue sharing contracts in procurement auctions the scenarios where the buyer and suppliers may possess asymmetric information about the demand distribution and how the cost of supply demand mismatch is affected by supply side competition finally this paper compares the optimal procurement strategy with a simpler but suboptimal strategy where the buyer first determines a purchase quantity and then seeks the lowest cost supplier for the quantity in an auction

naked slotting fees for vertical control of multi product retail markets abstract slotting fees are fixed charges paid by food manufacturers to retailers for access to the retail market this note considers this practice in the context of multi product markets with imperfectly competitive retailers a monopoly supplier of one good and competitive suppliers of other goods we show how the monopolist and the retailers can use naked slotting fees charges imposed on the suppliers of other goods to obtain vertically integrated monopoly profits

demand signalling and screening in channels of distribution this paper examines two ways channel members at the manufacturing and retail ends deal with asymmetric information in the context of new product introduction a manufacturer who has private information that demand for a new product will be high can differentiate itself from a manufacturer less confident of demand by undertaking high levels of pre launch advertising and offering a high wholesale price a retailer for its part can screen potentially high demand from potentially low demand products by stipulating a take it or leave it slotting allowance the assumption being that the offer will be accepted only by manufacturers confident of sufficient demand to recover the high initial cost of slotting allowances it is shown that manufacturers prefer to signal demand through advance advertising and wholesale price retailers to screen demand through slotting allowances it is shown that unless advance advertising is sufficiently effective slotting allowances yield higher total channel profits and higher social welfare

oligopolistic entry deterrence under incomplete information recent work has investigated the effects of asymmetric information between an incumbent firm and a potential entrant this study extends the analysis to allow the initial market structure to be a noncooperative oligopoly we show that there is a bayesian nash equilibrium in which the incumbent firms although unable to collude strategically deter entry that would have occurred under complete information in contrast to the past limit pricing literature it is a high price that deters entry as it signals to the potential entrant that this is a high cost industry extending the model to allow for multiple potential entrants we find that increasing the degree of potential competition raises the preentry price and reduces the likelihood of entry

accounting profits versus marketing profits a relevant metric for category management retailers have long recognized that some categories are more important than others in consumers store choice decisions the overall profitability of a store requires careful category level merchandising decisions to draw the most desirable consumers into the store however the traditional accounting measure of category profits offers imperfect help making these decisions since it does not take into account the effect of merchandising one category on the profits of other categories in the store a profit measure which takes into account these important cross effects is the most relevant performance metric for category management we call this new construct marketing profits as it focuses on consumers and their store choice behavior and is particularly pertinent to the calculus of marketing decision making despite its practical importance the total impact of merchandising a specific product category on a store s profitability is difficult to measure and in practice managers can only rely on intuitive calibration of marketing profits in making many retailing decisions the difficulty arises from the fact that to directly observe the marketing profits of a category one has to know how consumer store shopping behavior would change and hence what a store s profit would be if the category were to disappear from the consumers store choice decision furthermore it is difficult to devise a demand structure that is rich enough to capture bundled purchases on the part of consumers in a reasonable manner but is simple enough to allow estimation on the basis of commonly observed variables these two technical difficulties explain the conspicuous lack of research that systematically examines how to quantify what we call marketing profits this paper builds a formal model of marketing profits we start by formalizing shopper types and then establish the implied relationship between accounting profits and marketing profits by examining shelf space allocations by a retailer on the consumer side we assume that some consumers pay attention to the assortments offered by different retailers when making their store choice decisions this assumption allows us to establish the demand side linkage between accounting profits and marketing profits consumer store choice decisions put pressure on the retailer to carry wide assortments in categories which are particularly critical to the store choice decisions of the most desirable consumers thus the allocation of shelf space gives rise to the supplyside linkage between accounting profits and marketing profits by examining the outcome of the supermarket s shelf space decision we can merge these two linkages and determine the exact relationship between the accounting and marketing profits central to our theoretical structure is our assumption on retailers shelf space allocation decisions because of the well documented pressure that retailers face in making shelf space allocation decisions we assume that they are acting in a reasonably close to optimal fashion by using either an automated planogram or simply by trial and error optimization requires that returns on shelf space allocated to any category in the store must be identical on the margin and equate to the shadow price of shelf space it is this outcome of shelf space allocation that allows us to uncover the implied relationship between accounting and marketing profits this theoretical structure allows us to construct a measure of marketing profits which can be estimated with data commonly available to retailers we demonstrate this measurement technique by using publicly available data provided by marsh supermarkets and show how marketing profits can improve merchandising decisions in our particular application we find many categories where the marketing profits of a category are very different from the traditional accounting profits further we nd that using this new marketing profits metric to make category level feature advertising space decisions significantly improves the profitability of the retailer the paper concludes by discussing how our measure of marketing profits might be improved by additional research particularly if the researcher has data across many stores

price versus quantity monitoring in an adverse selection context this article explores the relative usefulness of price information over quantity information the main finding is that price monitoring can induce a sales level that is greater than the full information sales level this imposes additional selling costs on the agent and reduces that agent s rents the analysis identifies sufficient conditions for the principal to prefer price monitoring over quantity monitoring business format franchises exhibit many of the features of the setting analyzed here and the article s findings have implications for designing information systems in that sector of the economy

channel incentives in sharing new product demand information and robust contracts abstract demand for a new product is often highly uncertain as the developer of a new product the manufacturer may reduce the uncertainty of the product s demand through observing progress in his product development process or receiving demand signals directly from customers this paper first shows that a centralized channel always benefits from improved demand information yet to realize this benefit in a decentralized manufacturer retailer channel the manufacturer needs to disclose his private demand information to the retailer we show that the manufacturer s incentive to share his improved demand information depends on the supply contract signed with the retailer furthermore mandating the manufacturer to disclose his improved demand information can actually reduce the total channel profit we provide managerial insights by analyzing three widely used contract forms we investigate whether these contracts are robust under an unanticipated demand information update observed by the manufacturer we show that the quantity flexibility contract with a high return rate is not robust the buyback contract however is robust and always achieves information sharing while preserving channel performance

slotting allowances as real options an alternative explanation this article offers an alternative explanation for slotting allowances using contingent claims analysis or real option pricing slotting allowances arise because retailers hold call options on their shelf space while suppliers must buy these options to introduce a new product a simulated model of new product introduction shows that stocking a new product contains a significant imbedded real option component we also show that advertising and promotional support can reduce the real option value

receiver discretion in signalling models information transmission to competing retailers abstract the paper draws attention to the fact that receiver discretion is an integral aspect of any economic situation in which signalling considerations are important we illustrate our main point in a model of a manufacturer privately informed about the strength of demand with a number of competing retailers we show that the manufacturer will not distort his wholesale price as is usual in separating equilibria if the retail competition is sufficiently intense and the retailers discretion in their price decisions therefore limited whether as a consequence of a large number of retailers or of the retailers products being close substitutes

demand signalling under unobservable effort in franchising linear and nonlinear price contracts we study the signalling strategy of a principal who is privately informed about its high demand potential to an uninformed risk neutral agent we analyze the model in the context of a contract between a franchisor and a franchisee we examine the distortions of a two part pricing scheme necessary to credibly inform the franchisee agent we also study whether the inability of the franchisor principal to observe the agent s effort moderates or exaggerates the distortions from the first best two part pricing scheme a surprising outcome is that even though the principal incurs greater signalling cost the magnitude of distortion in the two part scheme is smaller when service is unobservable than when it is not thus a signalling strategy employing the fixed and variable fees is harder to detect under moral hazard empirical studies failing to control for moral hazard may incorrectly conclude that signalling strategy does not occur we later consider a three part scheme to verify whether or not the schem

comment managing channel profits comment in a recent paper in this journal jeuland and shugan jeuland a s shugan 1983 managing channel profits marketing sci 2 summer 239 272 proposed a quantity discount schedule as a way of coordinating a channel as they put it on p 253 of their paper a quantity discount schedule which would fix the retailer s and hence the manufacturer s profits to some fixed linear function of total channel profits would lead the channel to maximize profits the purpose of this note is to show that a quantity discount schedule is not necessary for channel coordination

vertical relationships between manufacturers and retailers inference with limited data in this paper different models of vertical relationships between manufacturers and retailers in the supermarket industry are compared demand estimates are used to compute price cost margins for retailers and manufacturers under different supply models when wholesale prices are not observed the purpose is to identify the set of margins compatible with the margins obtained from estimates of cost and to select the model most consistent with the data among non nested competing models the models considered are 1 a simple linear pricing model 2 a vertically integrated model and 3 a variety of alternative strategic supply scenarios that allow for collusion non linear pricing and strategic behaviour with respect to private label products using data on yogurt sold in several stores in a large urban area of the u s the results imply that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain this is consistent with non linear pricing by the manufacturers or high bargaining power of the retailers

the implications of pooled returns policies abstract when selling products with highly uncertain demands and short life cycles it is common for a manufacturer to offer some form of returns policy to entice the distributors to increase their order quantities in this paper we consider a multi item returns policy called pooled or joint returns policy under which the distributor can return any combination of the products up to r percent of the total purchases across all products we analyze the distributor s optimal profit and order quantity under the pooled returns policy and compare these operating characteristics to the case when a single item non pooled returns policy is instituted under the non pooled returns policy the distributor can only return on individual items using item specific return limits we show an intuitive result that the distributor will always achieve a higher profit under the pooled policy however the manufacturer could actually obtain a lower profit under the pooled policy due to a counter intuitive result the distributor may order less under the pooled policy even though the pooled policy offers more flexibility this counter intuitive result motivates us to determine the conditions under which the distributor would order less under the pooled policy finally we develop a heuristic for determining the distributor s optimal order quantities associated with the n product case under the pooled policy

upfront payments and exclusion in downstream markets although upfront payments are often observed in contracts between manufacturers and retailers little is known about their competitive effects or the role retailers play in securing them in this article we consider a model in which two competing retailers make take it or leave it offers to a common manufacturer we find that upfront payments are a feature of equilibrium contracts and in all equilibria only one retailer buys from the manufacturer these findings support the claims of small manufacturers who argue that they are often unable to obtain widespread distribution for their products because of upfront payments copyright 2007 rand

research note the effects of costs and competition on slotting allowances we consider the optimal two part tariff contract between a manufacturer and a retailer we show that retail competition in the presence of either fixed costs or bargaining power may lead to slotting allowances in an optimal contract even with a monopoly manufacturer and no information asymmetry on the other hand slotting allowances do not arise with a monopoly retailer and no information asymmetry whether the manufacturer is a monopoly or not we also show that more intense retail competition higher retail bargaining power larger retailer fixed costs lower marginal costs of retailing as well as larger relative retailer size whether coming from a location or operating advantage have a positive impact on the incidence and the magnitude of slotting allowances the opposing effects of the fixed and marginal operating costs on slotting allowances as well as the impact of competition and bargaining power on profits underscore the importance of careful definitions of these variables in empirical research

the economic theory of vertical restraints the types of contracts arising in a typical vertical manufacturer retailer relationship are more sophisticated than a simple uniform price in addition to setting per unit prices manufacturers and retailers also revert to non linear pricing and non price instruments these instruments or contracts are referred to as vertical restraints and can take the form of franchise fees resale price maintenance exclusive dealing exclusive territories and slotting allowances the use and the effects of one type of instrument versus another depend crucially on specific market assumptions upstream and downstream and on the division of bargaining power between manufacturers and retailers this paper surveys the industrial organization literature on retail pricing and shows that vertical restraint instruments have important effects on producer and consumer prices market structure efficiency and welfare

the value of flexibility in make to order systems the effect of demand correlation we consider a manufacturer of mass customized modular products who orders components under demand uncertainty and sets prices produces to order and trades excess components in a secondary market after this uncertainty is resolved the sequence of events reflects in a parsimonious fashion the considerable reduction in demand uncertainty between the procurement stage and the selling season typical of industries with long supply lead times and short product life cycles we prove that in contrast to conventional wisdom the value of production flexibility and expected profit increase with demand correlation if and only if commonality between the corresponding products does not exceed a threshold we also prove that the value of flexibility and expected profit may each increase or decrease with demand variability depending on demand correlations and component commonalities across the entire product line finally we prove that when demand shocks are independent the optimal product prices are positively correlated if and only if the degree of commonality between the corresponding products exceeds a threshold

oligopoly intermediation relative rivalry and market conduct we consider two firms that compete against each other jointly in upstream and downstream markets under two pricing games purchasing to stock pts in which firms select input prices prior to setting consumer prices and purchasing to order pto in which firms sell forward contracts to consumers prior to selecting input prices the antitrust implications of the model depend on the relative degree of oligopoly rivalry in the upstream and downstream markets firms strategically precommit to setting prices in the less rivalrous market which serves to soften competition in the more rivalrous market resulting in anticompetitive effects bertrand prices emerge in equilibrium when the markets are equally rivalrous while cournot outcomes arise with upstream monopsony or downstream monopoly markets the slope of firm reaction functions depends on relative rivalry a feature we use to derive testable hypotheses for antitrust analysis of a wide variety of industry practices

limited choice sets local price response and implied measures of price competition it is becoming increasingly evident that a consumer s brand choice decision in low involvement categories does not involve full search evaluation and comparison of price information of all brands available at point of purchase global price response the authors propose a two stage choice process in which the consumer first identifies a subset of brands within the universal set of brands called the choice set and then evaluates only those brands that are in the choice set relative to one another to select a single brand the authors find that consistent with reports of the extent of external price search of consumers response to shelf price variations is limited to the brands in the choice set local price response their results indicate that employing the assumption of global price response may lead to biased estimates of price elasticity and derived measures of clout and vulnerability to enable a managerially meaningful and useful assessment of a brand s competitive clout and vulnerability the