Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/197693
Authors: 
Pan, Cong
Year of Publication: 
2018
Series/Report no.: 
ISER Discussion Paper No. 1020
Abstract: 
I revisit supplier encroachment under the framework of a two-part tariff contract. When a monopoly manufacturer supplies competing retailers and each retailer's contracting process is unobservable to the rival, the retailer's lack of knowledge vis-à-vis its rival's contract may undermine the manufacturer's commitment power, which prevents the manufacturer from achieving optimal profit. I demonstrate that when the manufacturer directly supplies the resale market, it can use the direct channel as a commitment tool and thus restore its market power. Even though the manufacturer's encroachment creates more competitors in the resale market, the resultant higher wholesale prices aggravate double marginalization, which may reduce consumer welfare. This result holds even when the manufacturer is very efficient in direct selling.
Subjects: 
channels of distribution
encroachment
two-part tariff contract
supplier opportunism
consumer welfare
JEL: 
L14
L22
M11
Document Type: 
Working Paper

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