The Coase Theorem and Suboptimization in Marketing Channels

Abstract

Analytic and institutional approaches to channel coordination have developed independent of each other. This paper attempts to integrate both approaches by using the Coase Theorem, which has had wide application in the economics of natural resources and the law. Suboptimization means that total channel profits are lower than maximum attainable channel profits. Applying the Coase Theorem suggests that total channel profits can be maximized if property rights in the channel are well defined. Channel coordination is viewed in terms of defining rights, and several hypotheses regarding channel behavior are developed.