Comparative normative optimal behavior in two-echelon multiple-retailer distribution systems for a single-period product

Abstract

Several recent papers extended the classical single-echelon "newsboy model" for style goods to two-echelons. That is, one studies the interactive decisions between the "manufacturer" and the "retailer" - now recognized as two separate entities. However, these papers assumed that there is only one retailer. This paper studies optimal decisions and outcomes pertaining to a system with one manufactory and multiple retail outlets. Compared are the optima from different market/ownership configurations - ranging from a fully integrated system (a single owner owns the manufactory and all retail outlets) to a situation in which all entities are separately owned and the manufacturer charges different retailers different prices ("differential pricing"). Some of our findings appear counter-intuitive; e.g., we show that, from the societal point of view, enforcing uniform pricing is no more desirable that permitting differential pricing. © 2002 Elsevier Science B.V. All rights reserved.