Determinants of Margins in the Distribution Channel: An Empirical Investigation

42 Pages Posted: 13 Mar 2007

See all articles by Michaela Draganska

Michaela Draganska

Drexel University

Daniel Klapper

Humboldt University Berlin - School of Business and Economics

Sofia Berto Villas-Boas

University of California, Berkeley - Agricultural & Resource Economics

Date Written: February 2007

Abstract

In this paper we describe how margins in the channel vary over time within a product category and identify the market, manufacturer, and retailer characteristics that explain this variation. To obtain the equilibrium margins, we explicitly model the behavior of the various agents in the marketplace. Because the behavior of the agents changes in response to changes in the economic environment, we observe shifts in the total channel margins and the way they are split between the channel members. We explain this variation by examining the impact of directly measurable factors on total margins in the distribution channel and the share of these margins that manufacturers and retailers obtain. We illustrate the proposed approach using data for the ground coffee category in Germany. Our empirical analysis demonstrates that while the market-level factors affect total margins in the channel, size and other characteristics of manufacturers and retailers have a larger impact on the way margins are split. Our findings have immediate implications for the product portfolios offered by manufacturers, the positioning of store brands, and the retail service level.

Keywords: competitive advantage, econometric models, retailing, competitive strategy

Suggested Citation

Draganska, Michaela and Klapper, Daniel and Villas-Boas, Sofia, Determinants of Margins in the Distribution Channel: An Empirical Investigation (February 2007). Stanford University Graduate School of Business Research Paper No. 1959, Available at SSRN: https://ssrn.com/abstract=969409 or http://dx.doi.org/10.2139/ssrn.969409

Michaela Draganska (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Daniel Klapper

Humboldt University Berlin - School of Business and Economics ( email )

Spandauer Str.1
Berlin, Berlin 10178
Germany

Sofia Villas-Boas

University of California, Berkeley - Agricultural & Resource Economics ( email )

310 Giannini Hall # 3310
Berkeley, CA 94720
United States
510-643-6359 (Phone)
510-643-8911 (Fax)

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