Direct Marketing in Oligopoly

Authors


  • I am grateful to an anonymous coeditor and Takashi Yanagawa for their comments that greatly improved this paper. I also thank Hiroyuki Adachi, Junichiro Ishida, Shingo Ishiguro, Noriaki Matsushima, Eiichi Miyagawa, Toshiji Miyakawa, Hideo Owan, Takashi Shimizu, and the seminar participants at the Osaka Prefecture University, Kobe University, Kinki University, Kyoto University, and Tokyo University for their encouragement and comments during the various stages of preparation. The author gratefully acknowledges the financial support from the Ministry of Education, Science, Sports and Culture in the form of a Grant-in-Aid for Start-up (22830066), and the Kobe University CDAMS. Needless to say, all remaining errors are mine.

Abstract

We consider a game in which symmetric manufacturers decide whether to set up sites (e.g., web sites) where consumers can buy their products directly. Following this decision, the manufacturers choose quantities to sell to the retailers, and then the manufacturers with direct-sales sites and retailers choose quantities to sell to the consumers. We show that since an increase in the number of retailers may drive the direct-selling manufacturers from the retail market, it may raise the retailers’ profit and reduce social welfare. Finally, we discuss two cases: an oligopolistic wholesale market and a market with price competition and differentiated products.

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