Congratulating professor Mushegh Harutyunyan on another accepted paper “The bright side of having an enemy” at the Journal of Marketing Research.
JMR is one of the top journals in Marketing, ranked 4* in the ABS ranking and also included in the UTD and FT list of best business journals. Authors of the paper are – professor Mushegh Harutyunyan, NUGSB, and Baojin Jiang, Washington University in Saint Louis – John M. Olin Business School.
The authors show that the existence of a competitor can help the manufacturer improve channel coordination with its retailer, making both the manufacturer and its retailer better off in a competitive market than in a monopoly market. Further, an increase in the competitor’s competitive strength (e.g., better product quality) can strengthen the channel coordination effect, improving the manufacturer’s and retailer’s profits.
Conventional wisdom suggests that more intense competition will lower firms’ profits. We show that this may not hold in a channel setting with exclusive retailers. We find that a manufacturer and its retailer can both become worse off if their competing manufacturer and retailer with quality-differentiated products exit the market. Put differently, in a channel setting, more intense competition can be all-win for the manufacturer, the retailer, and the consumers. Interestingly, a high-quality manufacturer can benefit from an increase in its competitor’s perceived quality, e.g., due to favorable product reviews from consumers or third-party rating agencies. In other words, a manufacturer may prefer a strong rather than a weak enemy and the manufacturer can have an incentive to help its competitor to improve product quality or to remain in the market. Furthermore, we show that a multi-product monopolist manufacturer with an exclusive retailer may make higher profits by spinning off a product into a competing manufacturer that has its own retail channel, even without accounting for any proceeds from the spinoff.
Link to the article here