Manufacturer Collusion: Strategic Implications of the Channel Structure

32 Pages Posted: 2 Nov 2017

See all articles by Markus Reisinger

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Tim Paul Thomes

affiliation not provided to SSRN

Date Written: Winter 2017

Abstract

We investigate how the structure of the distribution channel affects tacit collusion between manufacturers. When selling through a common retailer, we find—in contrast to the conventional understanding of tacit collusion that firms act to maximize industry profits—that colluding manufacturers strategically induce double marginalization so that retail prices are above the monopoly level. This lowers industry profits but increases the profit share that manufacturers appropriate from the retailer. Comparing common distribution with independent (exclusive) distribution, we show that the latter facilitates collusion. Despite this result, common retailing leads to lower welfare because a common retailer monopolizes the downstream market. For the case of independent retailing, we also demonstrate that contract offers that are observable to the rival retailer are not necessarily beneficial for collusive purposes.

Suggested Citation

Reisinger, Markus and Thomes, Tim Paul, Manufacturer Collusion: Strategic Implications of the Channel Structure (Winter 2017). Journal of Economics & Management Strategy, Vol. 26, Issue 4, pp. 923-954, 2017. Available at SSRN: https://ssrn.com/abstract=3063673 or http://dx.doi.org/10.1111/jems.12209

Markus Reisinger (Contact Author)

Frankfurt School of Finance & Management - Economics Department ( email )

Sonnemannstra├če 9-11
Frankfurt am Main, 60314
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tim Paul Thomes

affiliation not provided to SSRN

No Address Available

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