Seminar by Marco Magnani

ore 12.30 Sala Seminari – I° piano, Palazzo Levi Cases, Via del Santo 33


Hybrid Allocation of Control Rights over Retail Pricing

Seminar by Marco Magnani, Università di Padova

Over the past few years, retail stores have increasingly accommodated the presence of manufacturers that have autonomy over the sale of products to consumers. Third party sellers compete directly with Amazon on its website, while large department stores have devoted areas managed by companies in the apparel, cosmetics and consumer electronic industries. A hybrid retailer is a firm that lets some manufacturers set the retail price of some products while retaining control over the retail prices of other, possibly competing, products. The drivers of the adoption of such hybrid configurations have received scant attention by scholars. By means of a theoretical model drawn from the literature of vertical relations, this paper aims at addressing the main trade-offs a retailer faces when delegating control rights over retail prices to manufacturers. Results show that retailers adopt a hybrid configuration as a middle ground between a pure reseller model, where it sells all products, and a marketplace model, where manufacturers sells all products. As a hybrid, retailers can mitigate inefficiencies from double marginalization&nbsp(pure reseller) and from aggressive competition between manufacturers (pure marketplace). This result arises only when upstream firms compensate retailers via ad valorem proportional fees. The presence of per unit linear fees, indeed, is not enough to incentivize retailers to keep control over prices: the firm prefers to delegate the choice to manufacturers because the linear fee acts as a cushion over margins and increases the vertical channel efficiency.