Incorporating balance of power in channel decision structure: Theory and empirical application |
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| Institution: | 1. Faculty of Administrätion, University of Ottawa, 136 Jean-Jacques Lussier St., P.O. Box 450, Ottawa, Ontario, Canada K1N 6N5;2. Mitchell Madison Group Canada;1. School of Health and Science, Dublin Road, Dundalk, Co. Louth, Ireland;2. Warwick Medical School, University of Warwick, Coventry, CV4 7AL, UK;1. Institute for Mental Health Policy Research, Centre for Addiction and Mental Health (CAMH), 33 Russell St., Toronto, ON M5S 2S1, Canada;2. Department of Psychiatry, University of Toronto, 250 College St., Toronto, ON M5S 1A8, Canada;3. Institute of Medical Science (IMS), University of Toronto, 1 King''s College Circle, Toronto, ON M5S 1A8, Canada;4. Centre for Criminology & Sociolegal Studies, University of Toronto, 14 Queen''s Park Crescent West, Toronto, ON M5S 3K9, Canada;5. Dalla Lana School of Public Health, University of Toronto, Toronto, ON M5T 3M7, Canada;1. Department of Economics, University of Bath, UK;2. Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science, UK;3. Department of Geography and Environment, London School of Economics and Political Science, UK |
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| Abstract: | The objective of a manufacturer is to maximize the profits of its brands. The retailer, on the other hand, is not interested in the profitability of any particular brand but concentrates on the overall category profit. In spite of these apparently diverging profit objectives, both manufacturers and retailers are increasingly realizing that profit margins for both may be increased when retailers and manufacturers recognize the strengths of each other and utilize them to maximize the overall category profit. We develop a game theoretic model to demonstrate that when the retailer allows a few large manufacturers to practice independent brand management but manages the rest of the brands, the category profit is indeed higher than the profits generated when it allows independent brand management by all manufacturers or acts as an uncompromising category manager. We also provide an empirical application of our model on scanner data. |
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