Manufacturer Encroachment in a Product Market and Common Ownership between Supply Chain Parties

Abstract

This study examines the effect of common ownership on supply chain management. From our model analysis, the following results were obtained. First, under specific economic environments, manufacturer encroachment improves retailer payoff. Second, under specific economic environments, consumer surplus and total surplus are decreased by manufacturer encroachment. Generally, when many channels exist, desirable results are achieved for consumers because they can purchase products from their preferred channels. However, our results demonstrate that common ownership engenders better results in cases with fewer channels than in cases with more channels. Therefore, our results suggest that consumers should not simply enjoy many channels: they should also devote attention to the behavior of supply chain parties who have a common owner. Additionally, we demonstrate that increasing the share of ownership by the manufacturer improves the total surplus under a non-encroachment case.