Title

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

Authors

Authors

R. Desiraju

Comments

Authors: contact us about adding a copy of your work at STARS@ucf.edu

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

Share

COinS