Empirical Models of Manufacturer-Retailer Interaction: A Review and Agenda for Future Research

Abstract

The nature of the interaction between manufacturers and retailers has received a great deal of empirical attention in the last 15 years. One major line of empirical research examines the balance of power between them and ranges from reduced form models quantifying aggregate profit and other related trends for manufacturers and retailers to structural models that test alternative forms of manufacturer-retailer pricing interaction. A second line of research addresses the sources of leverage for each party, e.g., trade promotions and their pass-through, customer information from loyalty programs, manufacturer advertising, product assortment in general, and private label assortment in particular. The purpose of this article is to synthesize what has been learned about the nature of the interaction between manufacturers and retailers and the effectiveness of each party’s sources of leverage and to highlight gaps in our knowledge that future research should attempt to fill.

Keywords: channel power, vertical strategic interaction, channel profit, trade promotions, private label

JEL Classification: M30