An industry equilibrium analysis of downstream vertical integration


Journal Article

This paper investigates the effect of product substitutability on Nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer, which may be either a franchised outlet or a factory store. Static linear demand and cost functions are assumed, and a number of rules about players' expectations of competitors' behavior are examined. It is found that for most specifications product substitutability does influence the equilibrium distribution structure. For low degrees of substitutability, each manufacturer will distribute its product through a company store; for more highly competitive goods, manufacturers will be more likely to use a decentralized distribution system. © 2008 INFORMS.

Full Text

Duke Authors

Cited Authors

  • McGuire, TW; Staelin, R

Published Date

  • January 1, 2008

Published In

Volume / Issue

  • 27 / 1

Start / End Page

  • 115 - 130

Electronic International Standard Serial Number (EISSN)

  • 1526-548X

International Standard Serial Number (ISSN)

  • 0732-2399

Digital Object Identifier (DOI)

  • 10.1287/mksc.1070.0335

Citation Source

  • Scopus