Consumer heterogeneity, product quality, and distribution channels

Hongyan Shi, Yunchuan Liu, Nicholas C. Petruzzi

Research output: Contribution to journalArticle

69 Scopus citations

Abstract

This paper shows that the effect of different distribution channel structures on product quality depends on the type of consumer heterogeneity and its distribution in a market. When consumer heterogeneity is uniformly distributed either vertically on willingness to pay or horizontally on transaction costs, a manufacturer may provide the same or lower product quality in a decentralized channel than in a centralized channel. In contrast, when consumer heterogeneity follows a more general distribution on willingness to pay, under certain conditions, the manufacturer may provide higher product quality in a decentralized channel than in a centralized channel. Decentralization also may lead to a higher product quality if consumer heterogeneity is uniformly distributed both vertically and horizontally, but not if consumer heterogeneity is uniformly distributed vertically on each of two product-quality attributes. Additionally, competition at the retail level may amplify these findings.

Original languageEnglish (US)
Pages (from-to)1162-1176
Number of pages15
JournalManagement Science
Volume59
Issue number5
DOIs
StatePublished - May 1 2013

All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research

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