Comparative normative optimal behavior in two-echelon multiple-retailer distribution systems for a single-period product

Several recent papers extended the classical single-echelon ‘newsboy model’ for style goods to two-echelons. That is, one studies the interactive decisions between the ‘manufacturer’ and the ‘retailer’ – now recognized as two-separate entities. However, these papers assumed that there is only one retailer. This paper studies optimal decisions and outcomes pertaining to a system with one manufactory and multiple retail outlets. Compared are the optima from different market/ownership configurations – ranging from a fully integrated system (a single owner owns the manufactory and all retail outlets) to a situation in which all entities are separately owned and the manufacturer charges different retailers different prices (‘differential pricing’). Some of our findings appear counter-intuitive; e.g., we show that, from the societal point of view, enforcing uniform pricing is no more desirable that permitting differential pricing.