Week 6

MANAGING CHANNEL PROFITS (1983)ABEL P. JEULAND AND STEVEN M. SHUGAN

Paper addresses problem of coordinating channel decisions.Channel of distribution consists of different channel members each having his own decision variables.Actions are observed indirectly, and invoke reactions, hence retailer can exercise some control.Failure to take coordination into consideration leads to major distortions.2. Formalization of a Simple Channel

2. Formalization of a Simple Channel

2. Formalization of a Simple Channel A Simple Formulation

2. Formalization of a Simple Channel Some Immediate Extensions

3. The Economics of Coordination A Simple Channel

4. Mechanisms for Coordination Joint OwnershipSimple ContractsImplicit UnderstandingsProfit Sharing:

Quantity discounts ~ variable price contract:

4. Mechanisms for Coordination Alternative Uses for Quantity DiscountsTransfer of inventory/ production costsPrice discrimination5. Divisions of Cooperative Profits

Moorthy's points:"that a quantity discount schedule is not necessary for channel coordination",

(2) "that under the conditions of Jeuland-Shugan's model, a two-part tariff is the best",

(3) "there is evidence that two-part tariffs are acceptable to retailers",

(4) "[Jeuland and Shugan's quantity discount] has more problems with the Robinson-Patman Act than does the two-part tariff" and

(5) "that the channel coordination explanation for quantity discounts is weaker than the price discriminationexplanation."