The bright side of having an enemy

Journal of Marketing Research, Forthcoming

80 Pages Posted: 7 Oct 2016 Last revised: 21 Dec 2018

See all articles by Mushegh Harutyunyan

Mushegh Harutyunyan

Nazarbayev University Graduate School of Business

Baojun Jiang

Washington University in Saint Louis - John M. Olin Business School

Date Written: December 10, 2018

Abstract

Conventional wisdom suggests that more intense competition will lower firms’ profits. We show that this may not hold in a channel setting with exclusive retailers. We find that a manufacturer and its retailer can both become worse off if their competing manufacturer and retailer with quality-differentiated products exit the market. Put differently, in a channel setting, more intense competition can be all-win for the manufacturer, the retailer, and the consumers. Interestingly, a high-quality manufacturer can benefit from an increase in its competitor’s perceived quality, e.g., due to favorable product reviews from consumers or third-party rating agencies. In other words, a manufacturer may prefer a strong rather than a weak enemy and the manufacturer can have an incentive to help its competitor to improve product quality or to remain in the market. Furthermore, we show that a multi-product monopolist manufacturer with an exclusive retailer may make higher profits by spinning off a product into a competing manufacturer that has its own retail channel, even without accounting for any proceeds from the spinoff.

Keywords: Competitive Strategy, Market Exit, Channel, Double Marginalization, Pricing, Entry Deterrence

JEL Classification: D01,D21, D40,D43,

Suggested Citation

Harutyunyan, Mushegh and Jiang, Baojun, The bright side of having an enemy (December 10, 2018). Journal of Marketing Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2848659 or http://dx.doi.org/10.2139/ssrn.2848659

Mushegh Harutyunyan

Nazarbayev University Graduate School of Business ( email )

HOME PAGE: http://https://sites.google.com/view/harutyunyan

Baojun Jiang (Contact Author)

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States
3149353315 (Phone)

HOME PAGE: http://apps.olin.wustl.edu/faculty/Jiang/

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