Strategic Choice of Channel Structure in an Oligopoly

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Strategic Choice of Channel Structure in an Oligopoly

Please use this identifier to cite or link to this item: http://hdl.handle.net/10355/10326

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Title: Strategic Choice of Channel Structure in an Oligopoly
Author: Liu, Lin, 1977; Wang, X. H. (X. Henry), 1962-; Yang, Bill Z.
Keywords: economic models
internal channel structures
supplier pricing
Date: 2011-03
Publisher: Department of Economics
Citation: Department of Economics, 2011
Series/Report no.: Working papers (Department of Economics);WP 11-02
Abstract: The traditional wisdom holds that the benefits of a decentralized channel structure arise from downstream competitive relationships. In contrast, Arya and Mittendorf (2007) showed that the value of decentralization can also arise from upstream interaction when the downstream firm conveys internal strife (decentralization) to an upstream external supplier. This paper extends the single firm centralization-decentralization choice model of Arya and Mittendorf (2007) to a strategic choice model in which all downstream competitors play a strategic centralization-decentralization game. We demonstrate that whether the main conclusions in the context of non-strategic choice of channel structure continue to hold when all firms play a centralization-decentralization game depends critically on the market structure of the upstream input market. Specifically, the conclusions are valid if all firms have exclusive upstream input suppliers but not so if the upstream input market is monopolized. Thus, whether the value of decentralization can arise from upstream interaction depends critically on the market structure of the upstream market.
URI: http://hdl.handle.net/10355/10326

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