Beruflich Dokumente
Kultur Dokumente
BRUCE MALLEN
VoJ. 28
(July,
Definition of Channel
Trade channels and channels of distribution are synonymous
with marketing channels. Eesource channels are also synonsnnous,
but they involve marketing channels from a buying rather than a
selling standpoint.
In a wide sense, channels are all the "fiows" extending from
the producer to the user. "A channel of distribution may be
thought of as the combination and sequence of agencies through
which one or more of the marketing fiows move. . . . In its simplest
form, a channel is limited to the movement of one unit of goods in
one fiow. . . . In its more complicated forms, the channel includes
all combinations and sequences of all the agencies used in all the
flows, possibly with an indication of the quantitative importance
of each. It may apply to a whole class or type of goods and to a
company, a trade, or an industry. In its most complex form, it
describes typical or actual fiows of broad classes of goods (say
consumers' goods or industrial goods) or charts the marketing
structure as a whole."^
This definition refers to the fiows of physical possession, ownership, promotion, negotiation, financing, risking, ordering, and
1 Ralph S. Alexander, "Marketing's Contribution to Economics," in
Robert A. Solo, Editor, Economics and the Piiblic Interest (New
Brunswick: Rutgers University Press, 1955), pp. 71-72.
2 Ronald S. Vaile, E. T. Grether, and Reavis Cox, Marketing in the
American Economy (New York: Ronald Press, 1952), pp. 121 and
124.
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Suppliers
(sellers)
Pure competitor
Middlenien
(buyers)
Pure competitor
Oligopolist
Monopolist
Pure competitor
Pure competitor
Oligopoly
Pure competitor
Pure competitor
Oligopsonist
Monopsonist
Oligopsonist
Monopolist
Monopsonist
Monopolist
Monopolist
MARKETS
Market
situation
Pure
competition
Oligopoly
Monopoly
Oligoposony
Monopsony
Bilateral
oligopoly
Bilateral
monopoly
Successive
monopoly
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Simple Monopoly''
If one channel member is a monopolist and the
others pure competitors, the consumer pays a price
equivalent to that of an integrated monopolist; and
the monopolist member reaps all the channel's pure
profits; that is, the sum of the pure profits of all
channel members. Pure profits are, of course, the
economist's concept of those profits over and above
the minimum return on investment required to keep
a firm in business.
Assume that the retailer is the monopolist and
the others (wholesalers and manufacturers) are
pure competitors, as for example, a single department store in an isolated town. Total costs to the
retailer are composed of the total cost of the other
levels, plus his own costs. No pure profits of the
other levels are included in his costs, as they make
none by definition (they are pure competitors).
The retailer would be in the same buying price
position, so far as the lack of suppliers' profits are
concerned, as would the vertically integrated firm.
Thus, he charges the same price as the integrated
monopolist and makes the same profits.
If the manufacturer were the monopolist and
the other channel members pure competitors, he
would calculate the maximizing profits for the channel, and then charge the wholesaler his cost plus
the total channel's pure profits, all of which would
go to him since the others are pure competitors.
The wholesaler would take this price, add it on to
his own costs, and the result would be the price to
'retailers. Then the retailers would do likewise
for the consumer price.
Thus, the prices to the wholesaler and to the
retailer are higher than in the first case (retailer
monopoly), since the channel's pure profits are
added on before the retail level. The price to the
consumer is the same as in the first case. It is of
no concern to the consumer if the pure profit elements in his price are added on by the manufacturer, wholesaler, or retailer.
Thus, under integrated monopoly, manufacturer
monopoly, wholesaler monopoly, or retailer monopoly, the consumer price is the same; but the prices
within the channel are the lowest with the retailer
monopoly, and highest with the manufacturer monopoly. Of course, the nonmonopolistic channel
members' pure profits are not affected by this intrachannel price variation, as they have no such
profits in any case.
Vertical Conflict
Palamountain isolated three forms of distributive conflict.
1. Horizontal competition this is competition
between middlemen of the same type; for
example, discount store versus discount store.
2. Intertype competition this is competition
between middlemen of different types in the
same channel sector; for example, discount
store versus department store.
3. Vertical conflict this is conflict between
channel members of different levels; for example, discount store versus manufacturer.
The first two forms, especially the first, are well
covered in ordinary economic analysis. Horizontal
competition is what usually is referred to as "competition," while intertj^e competition can be referred to as "distributive innovation."
Vertical conflict, neglected in usual microeconomic discussion, is the type which is of special
interest here. Microeconomics usually treats this
area simply (too simply) as the ordinary relationship between buyer and seller; but this overlooks
channel member conflict.
"It is apparent that a principal factor differentiating vertical conflict from horizontal and intertype
competition is that it is so directly a power conflict. Power relationships among horizontal competitors occasionally are significant, but this power
usually is narrowly limited. . . . In the plane of vertical conflict, however, power relationships are
direct, obvious, and important to the extent that
the market is imperfect."^
In essence, any type of channel market where
both buyers and sellers are channel members is
vertical conflict.
For the cooperative aspect, see Bruce Mallen "A
Theory of Retailer-Supplier Conflict, Control and Cooperation," Journal of Retailing, Vol. 39 (Summer,
1963), pp. 24-32 and 51.
Joseph C. Palamountain, The Politics of Distribution
(Cambridge: Harvard University Press, 1955).
Same reference as footnote 5, at pp. 52-53.
Successive Monopoly^
Successive monopoly that is, monopoly at two
or more successive channel stages can lead to a
T Alfred R. Oxenfeldt, Industrial Pricing and Market
Practices (New York: Prentice-Hall, Inc., 1951),
Chapter 7, Part I, Section A.
8 Same reference as footnote 7, at Chapter 7, Part II,
Section B.
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Countervailing
Countervailing power the ability of a buying
channel member to offset the power of a selling
member when competition dissolves as a regulator
is similar to bilateral monopoly. However, proponents of this theory claim that big sellers automatically cause the rise of big buyers.
Various authors have discussed the validity of
countervailing power.^^ In summary, it can be
said that although there are various reasons for
the rise of mass retailing and although these retailers are not always so effective in countervailing
big producers, nevertheless countervailance is an
important pricing-channel dynamic.
Inventory Theory'"
Inventory theory stresses the role of merchants'
stocks in times of changing, consumer demand:
1. The tendency of channel members to absorb
increases in demand through inventory increases rather than price increases.
2. Their tendency to absorb demand decreases
through price decreases rather than inventory
decreases.
Price-Level Theory
It appears obvious that the level of prices (a
macroeconomic rather than microeconomic concept)
i*John K. Galbraith, Amierican Capitalism,, The Concept of Countervailing Power (Boston: Houghton
Mifflin Co., 1956, revised edition) Chapter 9.
IB For example, Alex Hunter, "Notes on Countervailing
Power," The EconomAe Joumal, Vol. 68 (March,
1958), pp. 89-103.
iWilford, J. Eiteman, Price Determination (Ann Arbor: Bureau of Business Research, Report No. 16,
School of Business Administration, University of
Michigan, 1949).
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