Lump-Sum Payments and Retail Services: A Relational Contracting Perspective*

How should manufacturers motivate their retailers to provide customer services? The vertical restraints literature tells us that retail competition distorts service incentives in the short run. We consider how repeated interaction mitigates this problem, and particularly how a manufacturer can provide service incentives with discretionary lump-sum payments. We find that these payments may allow the manufacturer to sustain optimal service levels even if retailers are very impatient. We also show that banning reverse lump-sum payments may deprive consumers of the chance to enjoy high-quality services, and thereby reduce their welfare.     

Exclusive territories and performance dimensions in industrial distribution channels

There are two main approaches to studying vertical restraints in distribution channels: the anti-competitive and the efficiency approach. This article sets out to analyze the effects of exclusive territories agreements on performance levels in the distribution channel by proposing a number of hypotheses based upon these two approaches and by testing them with paired data from a sample of 116 manufacturer-dealer relationships from the Spanish industrial market. Results show that manufacturers and dealers perceive higher role performance levels in their partners in relationships characterized by exclusive territories. In a similar way, both manufacturers and dealers obtain higher levels of business performance in exclusive territories relationships, but we found no support for a direct effect of this vertical restraint on business performance. Instead, this effect is completely mediated by the higher levels of role performance associated with the exclusive territories agreement. Thus, empirical findings suggest that the economic outcomes achieved in ET relationships are due not to the presence of monopoly rents, but rather to the better role performance of the participants.     

Restraints of trade by durable good producers

Whether they face competition or not, durable good producers may have an incentive to impose vertical restraints on their customers in order to protect quasi-rents in the aftermarkets for maintenance and repair. In this paper, we show that these vertical restraints have little to do with the usual antitrust concerns regarding tying arrangements. Nonetheless, imposing such restraints involves antitrust risks. We examine these risks and the associated antitrust policy questions in light of the Supreme Court's recent Kodak decision. We also offer some suggestions for the appropriate antitrust policy.     

零售商对制造商实施纵向约束的机制和绩效评价

本文研究零售商主导的纵向约束的性质。已有的文献运用为分析单边市场结构而构造的理论和模型,假定零售商处于买方垄断地位。以这种方式来研究具有双边市场特征的纵向约束关系是不恰当的,其结论也没有获得实证检验的支持。本文基于双边市场理论,分析在零售商主导的市场环境下顾客、零售商、制造商三者的利益关系,对零售商主导的纵向约束进行绩效评价,并寻求相应的规制含义。     

Factory salesmen's roles with industrial distributors

There are five basic sales roles and tasks for factory sales persons to learn. The balance of these sales roles is shifting because of maturing products and more sophisticated distributors. A major new role of the business advisor is emerging. Manufacturers should compare the sales roles and tasks required by their distributors to the roles and capabilities of their existing sales reps. New hiring policies and specialized training may be in order for many manufacturers who plan to grow with their distributors.     

Antitrust and Vertical Integration in “New Economy” Industries with Application to Broadband Access

Whether the firms that supply Internet hardware and software should face restrictions on the use of their property is an important and controversial policy issue. Advocates of “net neutrality”—including President Obama and the current FCC majority—believe that owners of broadband distribution systems (hardware used to distribute Internet and video services) and producers of certain “must-have” video content should be subject to prophylactic regulation that transcends present-day antitrust law enforcement. In the economic terms that are used in debates on competition policy, the concern is with vertical integration that may give firms both the opportunity (through denial of access or price discrimination) and incentive (increased profit) to restrict competition. This paper’s central point is that virtually every production process in the economy is vertically integrated, and economics predicts changes in the extent of vertical integration—that is, changes in the boundaries of the firm—in response to changes in relative prices, technology, or institutions. Both vertical integration and changes in the extent of vertical integration are benign characteristics of efficient, dynamic, competitive markets. While there is no shortage of theoretical models in which vertical integration may be harmful, most such models have restrictive assumptions and ambiguous welfare predictions—even when market power is assumed to be present. Empirical evidence that vertical integration or vertical restraints are harmful is weak, compared to evidence that vertical integration is beneficial—again, even in cases where market power appears to be present. Thus, it is reasonable to conclude that prophylactic regulation is not necessary, and may well reduce welfare. Sound policy is to wait for ex post evidence of harm to justify interventions in specific cases. Net neutrality, recently enacted by the FCC but subject to judicial review, is an unfortunate idea.     

Inducing Cooperation with a Carrot Instead of a Stick

The Supreme Court’s reasoning in Leegin turned on the insight that manufacturers may use resale price maintenance (RPM) for procompetitive purposes. This paper presents a model of manufacturer-retailer interactions that clarifies why, as a rule, retailers and manufacturers are joint beneficiaries of service-inducing RPM. The model identifies factors that determine how RPM-generated benefits are allocated between a manufacturer and its retailers. The paper then shows that manufacturers may use market share discounts (MSD) in lieu of RPM or other vertical restraints to induce retailer performance. The outcomes and efficiency effects that are achieved with RPM can be replicated and usually surpassed if manufacturers substitute MSD for RPM, thereby enabling a manufacturer to retain all incremental profit rather than conceding some of it to retailers.     

The vertical restraints guidelines of the department of justice

In January, 1985, the Department of Justice issued Vertical Restraints Guidelines intended to clarify the legal status of vertical restraints, which had remained indefinite since the Supreme Court had declared in 1977 that the “rule of reason” was applicable to a large class of these restraints, and to outline an enforcement policy fair to all concerned and economically justified. The guidelines are mainly concerned with the two most controversial types of arrangement: territorial or customer restraints and exclusive dealing arrangements. Separately treated are tying arrangements, where the enforcement policy strictly follows lines indicated by a recent Supreme Court decision. A large part of the text of the guidelines is devoted to a detailed explanation of ways in which a given vertical restraint may be freed from the suspicion of anticompetitive effect. The analysis employs defective tests for anticompetitive impact and does not deal adequately with practices with both good and bad effects. Therefore, the guidelines do not appear to have accomplished their stated purpose.     

Vertical restraints in the Australian Trade Practices Act

Vertical restraints are singled out for detailed legislative treatment in the AustralianTrade Practices Act. Resale price maintenance and third-line forcing (tying another firm's products) are illegal per se while price discrimination and non-price vertical restraints (apart from third-line forcing) are subject to a competition test. Most vertical restraints may be either authorised by the Trade Practices Commission or given statutory exemption from the Act under a notification procedure unique to vertical restraints. The ability to seek an authorisation or to notify the Commission about a vertical practice has meant that the economic issues in this area have been dealt with mainly in administrative processes outside the courts. While issues of economic efficiency have been important, the main objective of the Commission has been to benefit consumers by promoting competition as a process. This paper briefly overviews what is probably the most complex area of antitrust in Australia yet, which has received negligible academic comment.     

公司品牌形象对经销商关系导向的影响——基于主导地位制造商的中国实证

迄今学术界偏重于研究公司品牌形象对消费者产品反应的影响。本研究检验公司品牌形象对经销商关系导向的影响。本文检验了公司品牌的能力和诚信两个因素影响经销商经济满意度和社交满意度,进而影响其关系导向的机制。研究发现,诚信对经销商经济满意度和社交满意度的影响效应大于能力;社交满意度对关系导向的影响效应大于经济满意度。研究显示,处于主导地位的制造商,当务之急是改善诚信形象,这将有助于提升经销商整体满意度,强化经销商的长期关系导向。论文讨论了研究结论对企业营销战略的借鉴意义,指出了局限性及未来研究方向。     

Determinants of economic and social satisfaction in manufacturer-distributor relationships

The aim of this work is to examine the dimensions of satisfaction in manufacturer-distributor relationships as well as identifying the antecedents of both the economic and the non-economic dimensions of satisfaction. A literature review about satisfaction in marketing channels is followed by quantitative research into how this interchange process is perceived by food product distributors in their relationships with manufacturers. The results provide strong support for the impact of communication, trust and commitment on satisfaction, as well as the interrelationships among the economic and the non-economic dimensions of satisfaction. Theoretical and managerial implications are extracted from these findings.     

纵向限制的经济逻辑与反垄断政策

本文分析了纵向限制的内涵和主要类型，通过整合并扩展近期关于纵向限制行为的理论研究，重点考察了纵向限制的私人和社会福利效应。本文提供了一个针对纵向限制行为的“动机→条件→效应”三阶段经济分析框架．借此甄别在何种情况下何种纵向限制的“恶性”效应会超过“良性”福利效应（或相反），以期为中国的反垄断立法提供借鉴。     

Managing reverse logistics to enhance sustainability of industrial marketing

In this paper, a sustainable industrial marketing framework of latest requirement of green and sustainable operation is proposed. When literatures in strategy, marketing and operation have provided insight about the efficiency of reverse logistics and business value for the customer, the interrelationship is still under explored. This raises the question whether manufacturers could determine ecological friendly strategies to address their customer's environmental conscious needs and design the suitable solution to strike the balance between ecology and economics. Based on the case study of a medical product manufacturer, this study addresses this question by investigating how manufacturers identify the problem of reverse logistics; design and develop of sustainable product and service by enhancing the efficiency of operations, and market competencies that add value to their customers' business processes. Within the strategy for designing for effective reverse logistics, these findings contribute to understand the use of information system and technology for reverse logistics to enhance the customer's business process and provide value-added process for customer retention.     

On vertical control in monopolistic competition

This paper demonstrates that vertical restraints are profitably imposed by a manufacturer or wholesaler who has some market power and whose product is sold in a monopolistically competitive downstream market. Simple conditions are developed under which a price floor (resale price maintenance) or a price ceiling is profitable, and under which private incentive for a restraint is sufficient for its social desirability. Where demand elasticities are constant, observed vertical price floors are always welfare-improving but profitable price ceilings may decrease welfare. In the special case of the CES-aggregate-surplus specification with competitive conjectures, price ceilings are profitable and welfare-decreasing.     

Non-Exclusive Dealing with Retailer Differentiation and Market Penetration

Retailer differentiation exists in most industries and gives manufacturers an incentive to contract with different retailers to penetrate a market. This paper analyzes the impact of this penetration effect on vertical contract exclusivity in an oligopolistic model with differentiated retailers. In the model, manufacturers endogenously choose contract types and negotiate with retailers on wholesale prices. We show that, when the penetration effect is sufficiently strong, non-exclusive contracts lead to higher profits for the manufacturers and retailers. The model is applied to an example with logit demand, which shows that both manufacturers choosing the non-exclusive contracts is a dominant-strategy Nash equilibrium even though they may both be better off under exclusive contracts when the products have high quality or low costs.     

Distribution contracts to support optimal inventory holdings under demand uncertainty

When suppliers produce products for which demand is uncertain, they face a problem of inducing downstream distributors to stock inventory levels that the suppliers prefer. This paper considers a wide array of alternative supply contracts, each of which consists of a mixture of constant per-unit wholesale prices, buy-back arrangements, and post sale payments contingent on sales made, such as revenue sharing or buybacks. We show that linear supply contracts specifying any combination of two of these three instruments can implement the vertical integrated outcome for a monopoly, thereby generating the supplier's preferred inventory configuration and price distribution. We extend our results to differentiated product oligopoly, demonstrating that each supplier obtains its preferred inventory configuration and price distribution, given the choices of its rival. Distributors choose optimal inventories from the suppliers' standpoint, even if suppliers do not know the distribution of demand uncertainty, and, given the perfect competition among distributors, all profits in the supply chain are captured by suppliers. Thus, suppliers are able to deal with demand uncertainty with remarkably little information about demand, and without the need to control dealer actions in detail. In particular, suppliers need not specify either dealer inventories or resale prices, but instead encourage distributors to order based on information in their possession and to set prices that generate desirable resale price dispersion.     

Price authority and information sharing with competing supply chains

We characterize the degree of price discretion that two competing manufacturers grant their retailers in a framework where demand is uncertain and privately observed by the retailers, while manufacturers only learn it probabilistically. In contrast with the consolidated vertical contracting literature, we assume that manufacturers cannot use monetary incentives to align the retailers’ incentives to pass on their unverifiable distribution costs to consumers. Our objective is to study how, in this context, an information-sharing agreement according to which manufacturers share their demand information affects prices, profits and consumer surplus. While equilibria with full price delegation never exist, regardless of whether manufacturers share information, partial delegation equilibria may exist with and without the exchange of information. These equilibria feature binding price caps (list prices) that prevent retailers from passing on their distribution costs to consumers, and are more likely to occur when manufacturers exchange demand information than when they do not share this information. Manufacturers profit from exchanging demand information when products are sufficiently differentiated, and retailers’ distribution costs are high enough. Yet, expected prices are unambiguously lower when manufacturers exchange demand information than when they don’t, making the information exchange beneficial to consumers.     

Transfer of market knowledge in a channel relationship: Impacts of attitudinal commitment and satisfaction

This paper attempts to explain how a manufacturer's attitudinal commitment and a distributor's kind and degree of satisfaction have an impact on the transferring of market knowledge from the distributor in a channel relationship. Using data from 225 paired distributors and manufacturers in the Chinese household appliances entity, six of our seven research hypotheses were supported. Results of the study show that a distributor's economic satisfaction directly promotes market knowledge transfer, while a distributor's social satisfaction will enhance market knowledge transfer only when positive economic satisfaction already exists. Furthermore, both the calculative commitment and the loyalty commitment of a manufacturer have inverse U-shaped relationships with a distributor's economic satisfaction, and are negatively and positively related, respectively, to the distributor's social satisfaction. The study thus points out the distinct roles of economic satisfaction and social satisfaction and their interaction in market knowledge transfer, and the insightful impacts of calculative and loyalty commitment on economic and social satisfaction. These findings provide new theoretical thinking about channel relationship management and the business practices of manufacturers.     

Should leading brand manufacturers supply private label brands to retailers: Calibrating the trade-offs

The consolidation of retailers across markets has considerably altered the competitive dynamics between leading brand manufacturers and retailers. The era in which brand manufacturers dictate the game to compliant retailers is long gone. Nowadays, with more equal negotiation power retailers are no longer just channel partners but rather business partners with whom to build business-to-business relationships. This has become apparent especially since retailers have developed their own private label brands (PLB) and actively seek brand manufacturers to supply them. For brand manufacturers supplying PLB may bring potential benefits but may also harm profits. Thus, this research investigates conditions under which a leading brand manufacturer would be better or worse off in terms of profitability producing PLB for retailers. Using a game theoretic model, we calibrate the trade-offs between the shelf space devoted by the retailer to the manufacturer brand and the amount of profit required from supplying the PLB necessary to counteract cannibalization and to generate profits for the manufacturer, under different levels of uncertainty regarding the availability of alternative suppliers. Calibrating these trade-offs provides brand manufacturers clear guidelines for negotiations with retailers regarding shelf space allocation and wholesale prices to be profitable supplying PLB.     

The environment and its impact on satisfaction with supplier performance: An investigation of the mediating effects of control mechanisms from the perspective of the manufacturer in the U.S.A.

An important question for manufacturers relates to how to conduct exchanges with suppliers when the interaction is done in an uncertain environment. Existing literature suggests the use of unilateral control (i.e., vertical control over the supplier) to reduce the negative effects of environmental uncertainty, whereas recent research on relational norms suggests bilateral control mechanisms (i.e., the norm of information sharing) as an alternative. We propose that in order to secure satisfactory performance from suppliers, manufacturers rely on different control mechanisms depending upon the level of environmental uncertainty on one hand, and the nature of interdependence in the manufacturer-supplier relationship on the other. Our empirical results based on 162 manufacturers indicate the following: 1) manufacturers' reliance on vertical control increases as environmental uncertainty and power asymmetry increase; 2) by contrast, reliance on the bilateral information sharing increases as interdependence magnitude increases and as environmental uncertainty decreases; 3) suppliers' performance, as perceived by manufacturers, increases with the use of bilateral information sharing.