Networks of Manufacturers and Retailers

CORE Discussion Paper No. 2005/41

46 Pages Posted: 28 Jul 2005

See all articles by Ana Mauleon

Ana Mauleon

Université Saint-Louis - Bruxelles; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

José J. Sempere-Monerris

University of Valencia - Department of Economic Analysis

Vincent J. Vannetelbosch

Center for Operations Research and Econometrics (CORE)

Date Written: June 2005

Abstract

We study the endogenous formation of networks between manufacturers of differentiated goods and multi-product retailers who interact in a successive duopoly. Joint consent is needed to establish and/or maintain a costly link between a manufacturer and a retailer. We find that only three distribution networks are stable for particular values of the degree of product differentiation and link costs: (i) the non-exclusive distribution and non-exclusive dealing network in which both retailers distribute both products is stable for intermediate degree of product differentiation and small link costs; (ii) the exclusive distribution and exclusive dealing network in which each retailer distributes a different product is stable for low degrees of product differentiation; (iii) the mixed distribution network in which one retailer distributes both products while the other retailer sells only one is stable for high degrees of product differentiation and large link costs. We show that the distribution networks that maximize social welfare are not necessarily stable. Thus, a conflict between stability and social welfare is likely to occur, even more if the degree of product differentiation is either low or high.

Keywords: Networks, retailers, manufacturers

JEL Classification: C70, L13, L20, J50, J52

Suggested Citation

Mauleon Echeverria, Ana Carmen and Sempere-Monerris, Jose J. and Vannetelbosch, Vincent J., Networks of Manufacturers and Retailers (June 2005). CORE Discussion Paper No. 2005/41. Available at SSRN: https://ssrn.com/abstract=760784 or http://dx.doi.org/10.2139/ssrn.760784

Ana Carmen Mauleon Echeverria

Université Saint-Louis - Bruxelles ( email )

Brussels, 1000
Belgium

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Jose J. Sempere-Monerris

University of Valencia - Department of Economic Analysis ( email )

Campus de los Naranjos
46022 Valencia
Spain

Vincent J. Vannetelbosch (Contact Author)

Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
1348 Louvain-la-Neuve, 1348
Belgium

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