Vertical integration or separation of the sales function as implied by competitive forces

In the present paper, we link the decisions concerning the sales strategies that are made by competing firms. We demonstrate that when the demand schedules facing competing firms are moderately correlated, asymmetric equilibria may arise where only one firm decides to establish its own sales force while its competitor sells its product through an independent sales agency. When demand schedules are highly correlated, however, only symmetric equilibria can arise, since firms derive greater benefits from imitating rather than contradicting their rivals' choices. We demonstrate that vertical separation of its sales function is more likely than vertical integration when firms produce products that are highly substitutable. (C) 1999 Elsevier Science B.V. All rights reserved.