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Title: Optimal quality and quantity provisions for centralized vs. decentralized distribution : market size uncertainty effects
Authors: Liu, Yan
Shi, Hongyan
Petruzzi, Nicholas C.
Keywords: DRNTU::Business::Marketing
OR In Marketing
Market Uncertainty
Issue Date: 2018
Source: Liu, Y., Shi, H., & Petruzzi, N. C. (2018). Optimal quality and quantity provisions for centralized vs. decentralized distribution: Market size uncertainty effects. European Journal of Operational Research, 265(3), 1144-1158. doi:10.1016/j.ejor.2017.08.030
Series/Report no.: European Journal of Operational Research
Abstract: We provide insights on how market size uncertainty affects the optimal quality (quantity) provision in distribution channels when consumers are heterogeneous in their willingness to pay for product quality. In this context, we denote the difference between the manufacturer’s optimal quality (quantity) provision for a centralized channel and its optimal analog for a decentralized channel as the quality (quantity) differential. We find that market size uncertainty creates or increases the quantity differential, but it does not affect the differential’s polarity. In contrast, market size uncertainty decreases the quality differential and it does so to the extent that, depending on the level of consumer heterogeneity, it reverses the differential’s polarity. Moreover, we find that the higher the inherent uncertainty level, the more pronounced are the effects. We likewise find that the effects of market size uncertainty are amplified if the notion of consumer heterogeneity is replaced with retail-level competition.
ISSN: 0377-2217
Rights: © 2017 Elsevier B.V. All rights reserved. This paper was published in European Journal of Operational Research and is made available with permission of Elsevier B.V.
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:NBS Journal Articles

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