2007/09/01 by Anil Arya, Brian Mittendorf, David E. M. Sappington · 3 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Consumer Market Behavior and Pricing #Merger and Competition Analysis #Supply Chain and Inventory Management
paper · doi:10.1287/mksc.1070.0280
openalex publication_date 2007/09/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
The common wisdom is that a retailer suffers when its wholesale supplier encroaches on the retailer's operations by selling directly to final consumers. We demonstrate that the retailer can benefit from encroachment even when encroachment admits no synergies and does not facilitate product differentiation or price discrimination. The retailer benefits because encroachment induces the encroaching supplier to reduce the wholesale price in order not to diminish unduly the retailer's demand for the manufacturer's wholesale product. The lower wholesale price and increased downstream competition mitigate double marginalization problems and promote efficiency gains that can secure Pareto improvements.