Journal
MARKETING LETTERS
Volume 32, Issue 4, Pages 379-395Publisher
SPRINGER
DOI: 10.1007/s11002-021-09575-7
Keywords
Supply chain management; Manufacturer encroachment; Strategic encroachment deterrence; Supply chain cooperation; Cost-reducing voluntary investments
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Funding
- JSPS KAKENHI [17H00959, 18K12909, 19H01474, 20H01551, 21K13409]
- Grants-in-Aid for Scientific Research [20H01551, 21K13409, 19H01474, 17H00959, 18K12909] Funding Source: KAKEN
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This study investigates the cooperation in the supply chain between a manufacturer and a retailer, finding that retailer investments can deter manufacturer encroachment but at the same time reduce the variety of channels available for consumers to choose from, leading to a decline in consumer surplus.
To elucidate supply chain cooperation between a manufacturer and a retailer, this study examines a model in which the retailer makes voluntary investments to reduce the marginal production cost of the manufacturer. The manufacturer is allowed to introduce a direct selling channel in addition to the indirect channel through the retailer (i.e., manufacturer encroachment), which however dampens the retailers' investment incentives. The retailer can leverage its voluntary investments as a means of deterring manufacturer encroachment. We demonstrate that manufacturer encroachment is strategically deterred when the retailer?s cost-reduction technology is sufficiently effective. This strategic encroachment deterrence encourages the retailer to invest more, but it narrows the variety of channels from which consumers can select. When the latter effect dominates the former effect, consumer surplus declines with strategic encroachment deterrence.
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