CHANNEL COORDINATION WHEN RETAILERS COMPETE

This paper explores channel coordination by a manufacturer that sells through competing retailers and that treats these retailers equally, a s required by the Robinson-Patman Act. The authors show that, in gener al, there exists no single two-part tariff with a constant per-unit ch arge that will duplicate the behavioral results (i.e., prices, quantit ies, and channel profits) that are obtained by a vertically integrated system; that is, the channel cannot be coordinated except in the triv ial cases of identical or noncompeting retailers. However, an appropri ately specified quantity-discount schedule will enable the channel to earn the same profits generated by a vertically integrated system. Con ditions are derived under which a manufacturer will prefer to offer va rious two-part tariffs with constant per-unit charges instead of the c hannel-coordinating quantity-discount schedule. The authors also estab lish the existence of a menu of two-part tariffs that mimics all resul ts of a vertically integrated system. However, only under stringent co nditions will retailers select the appropriate tariff from the menu. W hen these conditions are not satisfied, the channel is worse off than in the case of a single, second-best tariff. It is also demonstrated t hat under a wide range of parametric values the manufacturer will pref er to offer the second-best two-part tariff rather than a menu of two- part tariffs that could maximize channel profits.