Costs and benefits of inducing intrabrand competition: The role of limited liability

    Authors

    R. Desiraju

    Comments

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    Abbreviated Journal Title

    Mark. Sci.

    Keywords

    channels of distribution; agency theory; intrabrand competition; free-riding; limited liability; vertical contractual restrictions; MANAGING CHANNEL PROFITS; VERTICAL RESTRAINTS; CONTRACTS; PRINCIPAL; AGENT; Business

    Abstract

    When is inducing intrabrand competition (via nonexclusive distribution) an optimal strategy? To address this issue, a static model is developed to examine two settings. The manufacturer uses exclusive distributors in the first setting and nonexclusive distributors in the second. The analysis indicates that the choice of distribution rests critically on whether the manufacturer can effectively extract surplus from the distributors. Due to a variety of institutional reasons, the distributors' liability is often limited in performing on behalf of the manufacturer; such limited liability restricts how much of the distributors' surplus can be extracted. When the distributors' surplus cannot be fully extracted, the manufacturer may prefer nonexclusive distribution even when distributors can free-ride on each other's efforts.

    Journal Title

    Marketing Science

    Volume

    23

    Issue/Number

    3

    Publication Date

    1-1-2004

    Document Type

    Article

    Language

    English

    First Page

    429

    Last Page

    450

    WOS Identifier

    WOS:000223943600010

    ISSN

    0732-2399

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