Essays on distribution channels

In the first part of the dissertation, we incorporate the concept of distributive fairness into the conventional dyadic channel to study how fairness may affect the interactions between the manufacturer and the retailer. Traditional wisdom has shown that only nonlinear pricing schemes can coordinate a dyadic channel. We show that the manufacturer can use a simple wholesale price above its marginal cost to coordinate this channel as long as the retailer is sufficiently fair-minded. This is true in both the Stackelberg game where the manufacturer chooses its wholesale price before the retailer sets the retail price and the Nash bargaining game where the manufacturer and the retailer bargain on wholesale price together. We also show that a two-part tariff or quantity discount can still coordinate the fair channel. However, the manufacturer cannot use either mechanism to take away all the channel profit. Indeed, the manufacturer need not even claim the largest share of the channel profit when the channel is so coordinated. Further, different from traditional prediction, the result shows that social welfare in linear pricing scheme will be higher than the social welfare in non-linear pricing schemes when the channel is coordinated. In the second part of the dissertation, we study whether a monopolistic manufacturer can increase both channel profit and its own profit through the implementation of trade promotions. Critics have long faulted the wide-spread practice of trade promotions as wasteful. Yet the practice continues. In the dissertation, we resolve some inconsistency between theory and practices through an analytical model. We show that in a distribution channel characterized by a dominant retailer, a manufacturer has incentives to price-discriminate between the dominant retailer (frequently chain stores) and independents. Such price-discrimination can be implemented legally through trade promotions and induces different inventory-ordering behaviors on the part of retailers. Differences in inventory holding costs have been shown to be an important determinant of consumer promotions. The analysis suggests that differences in holding costs may also be an important driver of the use of trade promotions