TY - JOUR
T1 - Optimal quality and quantity provisions for centralized vs. decentralized distribution
T2 - Market size uncertainty effects
AU - Liu, Yan
AU - Shi, Hongyan
AU - Petruzzi, Nicholas C.
N1 - Funding Information:
The authors are grateful to the anonymous review team for their insightful comments and suggestions. Yan Liu's contribution was supported in part by the National Natural Science Foundation of China (71731010), the Fundamental Research Funds for the Central Universities (WK2040160027), and the Guangdong Natural Science Foundation (2014A030313627).
Publisher Copyright:
© 2017 Elsevier B.V.
PY - 2018/3/16
Y1 - 2018/3/16
N2 - We provide insights on how market size uncertainty affects the optimal quality (quantity) provision in distribution channels when consumers are heterogeneous in their willingness to pay for product quality. In this context, we denote the difference between the manufacturer's optimal quality (quantity) provision for a centralized channel and its optimal analog for a decentralized channel as the quality (quantity) differential. We find that market size uncertainty creates or increases the quantity differential, but it does not affect the differential's polarity. In contrast, market size uncertainty decreases the quality differential and it does so to the extent that, depending on the level of consumer heterogeneity, it reverses the differential's polarity. Moreover, we find that the higher the inherent uncertainty level, the more pronounced are the effects. We likewise find that the effects of market size uncertainty are amplified if the notion of consumer heterogeneity is replaced with retail-level competition.
AB - We provide insights on how market size uncertainty affects the optimal quality (quantity) provision in distribution channels when consumers are heterogeneous in their willingness to pay for product quality. In this context, we denote the difference between the manufacturer's optimal quality (quantity) provision for a centralized channel and its optimal analog for a decentralized channel as the quality (quantity) differential. We find that market size uncertainty creates or increases the quantity differential, but it does not affect the differential's polarity. In contrast, market size uncertainty decreases the quality differential and it does so to the extent that, depending on the level of consumer heterogeneity, it reverses the differential's polarity. Moreover, we find that the higher the inherent uncertainty level, the more pronounced are the effects. We likewise find that the effects of market size uncertainty are amplified if the notion of consumer heterogeneity is replaced with retail-level competition.
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U2 - 10.1016/j.ejor.2017.08.030
DO - 10.1016/j.ejor.2017.08.030
M3 - Article
AN - SCOPUS:85029010308
SN - 0377-2217
VL - 265
SP - 1144
EP - 1158
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 3
ER -