Retail Buyer and Manufacturer Kickback

Abstract

Retailers often employ professionals known as retail buyers to help assess demand and determine the right quantities of products to order to meet uncertain demand in their stores. However, in many economies and industries, a manufacturer may seek to influence a (retail) buyer for its own advantage, by offering the buyer a kickback in return for a large order. As a result, the retailer and the manufacturer engage in a tug-of-war for influence over the buyer. In this paper, we introduce the role of the buyer as a distinct player into the workhorse dyadic model of a retail channel, and investigate the impact of kickback on channel efficiency as well as identify the winners and losers due to kickback. We find that the manufacturer need not always benefit from the kickback despite being the one offering it. Furthermore, the retailer may not always be the victim of the kickback. Indeed, the retailer may strategically trigger the kickback as a means to shift some of its buyer compensation cost to the manufacturer. Nevertheless, the buyer need not always be swayed by the kickback to distort the order quantity. Moreover, channel efficiency does not always suffer and may even improve because of kickback. Our analysis thus provides a more nuanced picture of kickback in a retail channel, and sheds some light on why manufacturer kickback is fairly prevalent in retail channels and can be difficult to eliminate.

Keywords: Bayesian Persuasion, Channel Conflict, Distribution Channel, Kickback, Retail Buyers, Game Theory

JEL Classification: D82, C72, L14, M31