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Lump‐Sum Payments and Retail Services: A Relational Contracting Perspective *
Author(s) -
Lømo Teis Lunde,
Ulsaker Simen A.
Publication year - 2021
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12236
Subject(s) - payment , lump sum , competition (biology) , business , incentive , welfare , service (business) , payment service provider , perspective (graphical) , quality (philosophy) , marketing , industrial organization , microeconomics , commerce , finance , economics , computer science , market economy , ecology , philosophy , epistemology , artificial intelligence , biology
How should manufacturers motivate their retailers to provide customer services? The vertical restraints literature tells us that retail competition distorts service incentives in the short run. We consider how repeated interaction mitigates this problem, and particularly how a manufacturer can provide service incentives with discretionary lump‐sum payments. We find that these payments may allow the manufacturer to sustain optimal service levels even if retailers are very impatient. We also show that banning reverse lump‐sum payments may deprive consumers of the chance to enjoy high‐quality services, and thereby reduce their welfare.