Competition between Physical and Electronic Content Retailers

ISER DP No. 1123

26 Pages Posted: 6 Apr 2021

See all articles by Yuta Kittaka

Yuta Kittaka

Graduate School of Economics, Kobe University (JSPS Postdoctoral Research Fellow)

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER)

Fuyuki Saruta

Osaka University, Graduate School of Economics, Students

Date Written: March 11, 2021

Abstract

We investigate a model in which a monopoly supplier distributes two types of its product through a traditional retailer with a wholesale price contract and an online retailer with an agency contract. Because such an agency contract eliminates the double marginalization problem, the online retailer has a cost advantage over the traditional retailer. Given the advantage of the online retailer, we also consider a possible request by the traditional retailer: the retail price of the online retailer is not smaller than the wholesale price for the traditional retailer. We obtain the following results. An increase in the online retailer's bargaining power over the supplier benefits the two retailers but harms the supplier. Under the request to protect the traditional retailer, the wholesale price is strictly higher than that in the baseline model. The retailers' equilibrium prices are also strictly higher than those in the baseline model. The request benefits the supplier and the online retailer, but harms the traditional retailer.

Keywords: Agency contract, Price-quantity competition, Dual-channel supply chain, Royalty rate

JEL Classification: L22, L13, C72, C78

Suggested Citation

Kittaka, Yuta and Matsushima, Noriaki and Saruta, Fuyuki, Competition between Physical and Electronic Content Retailers (March 11, 2021). ISER DP No. 1123, Available at SSRN: https://ssrn.com/abstract=3804604 or http://dx.doi.org/10.2139/ssrn.3804604

Yuta Kittaka

Graduate School of Economics, Kobe University (JSPS Postdoctoral Research Fellow) ( email )

Hyogo Prefecture
Japan

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Fuyuki Saruta (Contact Author)

Osaka University, Graduate School of Economics, Students ( email )

Osaka Prefecture
Japan

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