The Economics of Retailing and Distribution

The Economics of Retailing and Distribution

Roger R. Betancourt

This book provides a uniform and coherent approach to the analysis of distribution systems in general and retail systems in particular. It develops the fundamentals of retail demand and supply, and demonstrates how the provision of distribution services is a principal determinant of economic outcomes in retail exchanges for both retailers and their customers, as well as for other agents such as suppliers and franchisors.

Chapter 8: Channel Issues

Roger R. Betancourt

Subjects: business and management, marketing, economics and finance, industrial economics


Just as indicated in the introduction to the book, in this chapter attention is focused on a subset of interactions between retailers and their suppliers or channel issues in which distribution services play or can play a particularly important role in determining the nature of these interactions. Section 8.1 discusses how the distribution of economic power in a channel can be affected by who controls the level of distribution services. Section 8.2 summarizes recent empirical evidence on the distribution of power in a channel in light of the previous discussion. Section 8.3 considers a dramatic illustration of the exercise of economic power in a channel by a retailer, namely the possible lock-out of Betamax video rentals through the choice of assortment levels by video shops. Section 8.4 discusses the direct and indirect profit incentives retail firms have to become complex organizations through backward integration, moves into new markets, and the addition of product categories or varieties. Our discussion identifies the role of distribution services in these processes and relates these incentives to the evolution of Wal-Mart and the introduction of private labels or store brands. Finally, section 8.5 indicates how distribution services have been treated by the economics and marketing literature in the context of channel issues. The aim of this section is to illustrate rather than to provide a comprehensive or exhaustive review. 8.1 ECONOMIC POWER IN A CHANNEL1 In general economic power is the ability to influence an economic agent’s choices in terms of levels and/or margins of...

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