Price competition in a duopoly common retailer channel

Today's retail market for most consumer goods is dominated by large retail chains. These powerful retailers are often much larger than most manufactures, and they usually carry multiple brands in most product categories. Despite their increasing influence on the market, it is only recently that their perspective of channel problems began to gain attention of analytical studies. We add to this growing literature of channel studies by modeling price competition in the most common channel type: multiple common retailers. In particular, this paper deals with a channel structure in which there are duopoly manufacturers and duopoly common retailers. One of our major findings is that, while (horizontal) product differentiation helps manufacturers, it hurts retailers. Conversely, while (horizontal) store differentiation helps retailers, it hurts manufacturers. Other effects of these two types of differentiation on equilibrium solutions are also analyzed. Managerial implications of the results are derived and summarized in the Executive Summary.