Coordinating channels for durable goods: the impact of competing secondary markets



Publishing details

Social Sciences Research Network

Authors / Editors

Desai P S; Koenigsberg O; Purohit D


Publication Year



A large literature in economics and marketing studies the problem of manufacturer's designing contracts that give a retailer appropriate incentives to make decisions that are optimal from the manufacturer's point of view (see, for example, Spengler 1950, Jeuland and Shugan 1983, McGuire and Staelin 1983, Lal 1990, Rao and Srinivasan 1995, Desai 1997, among others). An important result from this literature is that the manufacturer can coordinate retail price decisions by choosing a two-part tariff in which the wholesale price equals the manufacturer's marginal cost and the fixed fee extracts all the rents from the retailer. In other words, the manufacturer sells the firm to the retailer for the fixed fee and, thus, eliminates the double-marginalization problem.


Social Sciences Research Network