Manufacturers' channel structures when selling asymmetric competing products

Manufacturers often face the fundamental channel structure decision, namely, whether to sell their products directly to consumers or indirectly through an intermediary. To address this issue, extensive research has analyzed equilibrium channel structures for competing, equally substitutable products. However, in reality, many competing products are asymmetric in both substitutability and brand equity. In this paper, we study how these two asymmetric characteristics affect the equilibrium channel structures of manufacturers selling competing products. Following some recent studies, we adopt a refined consumer demand model derived from the representative consumer utility function. Based on this model, we examine three possible types of competition between the two supply chains: Cournot (quantity) competition, Bertrand (price)competition, and Bertrand-Cournot competition. We find that brand equity, substitutability, as well as the type of competition all play important roles in determining the equilibrium channel structures. Specifically, in equilibrium a manufacturer always sells directly when its rival competes on quantity. Moreover, when there is sufficient asymmetry in either brand equity or substitutability, manufacturers tend to sell directly. Our results demonstrate that the benefits of selling indirectly shown in previous studies depend critically on the assumptions of equally substitutable products and Bertrand competition.