Distribution services and economic power in a channel

Abstract

We explore the consequences of formally acknowledging the influences of distribution services on the economic power of a retailer relative to a manufacturer in a simple channel dyad. The work is in the tradition of the analysis of successive monopolies and features the analysis of the well-known double marginalization problem. We compare two stylized cases of the provision of distribution services, the first exclusively by the downstream agent and the second by the upstream agent. In reference to a standard leader-follower model without acknowledged distribution services, the results of these two cases establish the importance of including distribution services in empirical and analytical investigations of the distribution of power in the channel. Briefly, distribution services may afford the agent that controls their provision unusual opportunities to capture economic power, and benefit consumers in a decentralized channel more than in a vertically integrated one.