NDLI: The Role of Market Evolution in Channel Contracting

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The Role of Market Evolution in Channel Contracting

Content Provider	Scilit
Author	Gao, Long Mishra, Birendra K.
Copyright Year	2018
Description	Journal: SSRN Electronic Journal Real markets evolve over time. They often exhibit complex behaviors, such as auto-correlation, continuity, and non-stationarity. How do these behaviors affect channel contracting? We study the problem in a bilateral channel where the retailer has private information on evolving market conditions. We characterize the optimal contract under arbitrary market evolution. The central notion is market inertia: it prices retailer's information advantage, dictates price and quantity response over time, and determines the contract complexity. Using market inertia, we identify a general property - stochastic linearity - that justifies the use of simple contracts for a much larger class of channel conditions. For practitioners, we offer refined guidance: (i) when the market has linear dynamics, simple contracts are sufficient; (ii) when the market is continuous, the quantity distortion should be pervasive; (iii) when the market is non-stationary, the distortion can vanish, intensify, stay constant, or even go non-monotonic over time. By highlighting the central role of realistic market behaviors, this paper advances our understanding of channel theory and practice.
Related Links	https://escholarship.org/content/qt47s2046c/qt47s2046c.pdf?t=p68vl8 https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3106082
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3106082
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2018-01-09
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Operations Research and Management Science Market Evolution Information Sharing Information Asymmetry Distribution Channel
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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