Ownership coordination in a channel: Incentives,returns, and negotiations |
| |
Authors: | Eyal Biyalogorsky Oded Koenigsberg |
| |
Institution: | (1) Arison School of Business, IDC, Herzliya, Israel 46150;(2) Columbia Business School, Columbia University, New York, NY 10027, USA |
| |
Abstract: | In many industries firms have to make quantity decisions before knowing the exact state of demand. In such cases, channel
members have to decide which firm will own the units until demand uncertainty is resolved. The decision about who should retain
ownership depends on the balance of benefit and risk to each member. Ownership, after all, is costly. Whichever member owns
the units accepts the risk of loss if more units are produced than can be sold. But ownership also grants firms the flexibility
to respond to demand once it becomes known by adjusting price. In this study, we analyze ownership decisions in distribution
channels and how those decisions are affected by demand uncertainty. We model demand based on micro-modeling of consumer utility
functions and capture demand uncertainty related to market size and price sensitivity. This study shows that as long as the
degree of uncertainty about market size is intermediate, the retailer and the manufacturer both benefit when the manufacturer
maintains ownership of the units. But when there is substantial uncertainty about market size, the retailer and the channel
are better off if the retailer takes ownership but the manufacturer still prefers to maintain ownership. Thus, there is potential
for channel conflict regarding ownership under high levels of uncertainty. We show that, using product returns, the manufacturer
can achieve the same outcome under retailer ownership as under manufacturer ownership. This provides an additional new rationale
for the prevalence of product returns. The first-best outcome (from the perspective of total channel profit), however, is
under retailer ownership without product returns when uncertainty is high (i.e., product returns reduce the total channel
profit). Negotiations between the manufacturer and the retailer can lead to the first-best outcome but only under quite restrictive
constraints that include direct side payments by the retailer to the manufacturer and the retailer being pessimistic about
its outside option (when an agreement cannot be reached) during the negotiation. |
| |
Keywords: | |
本文献已被 SpringerLink 等数据库收录! |
|