Leadership, Dominance, and Preeminence in a Channel Structure with a Common Retailer

Abstract

ABSTRACT As firms embrace collaborative principles, partners of varying strengths and standing are coming together to deliver products effectively to consumers. In a two‐tier collaborative channel, a partner's relative standing is manifest in the order in which wholesale and retail prices are determined; in turn, standing influences a partner's ability to achieve profits. We propose a framework, based on two factors that specify the strength of partners across channel tiers (channel leadership) and within a tier (echelon dominance) and together determine a partner's standing in the pricing process, to effectively study various channel strength scenarios. Our analysis of Stackelberg games corresponding to these scenarios reveals interesting insights regarding the impact of channel leadership and echelon dominance, both individually and jointly. For instance, we show that the presence of a dominant player in the upstream manufacturing tier benefits both the dominant and the weak manufacturers. The leadership‐dominance framework also allows us to study the effect of a retailer's sequencing of its pricing of the two manufacturers’ products. By embedding the retailer's timing choices in channel strength scenarios, we find that both the retailer and weak manufacturer prefer that the retailer set prices for the two products simultaneously; in contrast, the echelon‐dominant manufacturer benefits from the retailer sequentially pricing the manufacturers’ products. Our analysis also covers preeminent channel leaders that control both wholesale and retail prices, finding that preeminent partners achieve significant gains and consumers benefit from low retail prices. Moreover, the weak manufacturer benefits from the presence of a preeminent manufacturer.

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