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A Model of Direct and Intermediated Sales
Author(s) -
Hendershott Terrence,
Zhang Jie
Publication year - 2006
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2006.00101.x
Subject(s) - intermediary , upstream (networking) , business , competition (biology) , economic surplus , value (mathematics) , welfare , microeconomics , marketing , industrial organization , economics , computer science , market economy , computer network , ecology , machine learning , biology
We examine a model in which an upstream firm can sell directly online and through heterogeneous intermediaries to heterogeneous consumers engaging in time‐consuming search. Direct online sales may be more or less convenient and involve costly returns if the good fits consumers poorly. Direct selling appeals to higher‐value consumers and increases the upstream firm's profits by allowing price discrimination. Competition and segmentation due to direct sales results in lower intermediary prices, making all consumers better off. Thus, entry by an upstream firm increases consumer surplus at the expense of intermediaries with the net result being an increase in social welfare.