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Three essays on distribution channels and pricing strategy

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Title: Three essays on distribution channels and pricing strategy
Author(s): Shi, Hongyan
Director of Research: Liu, Yunchuan
Doctoral Committee Chair(s): Liu, Yunchuan
Doctoral Committee Member(s): Chhajed, Dilip; Petruzzi, Nicholas C.; Fang, Er
Department / Program: Business Administration
Discipline: Business Administration
Degree Granting Institution: University of Illinois at Urbana-Champaign
Degree: Ph.D.
Genre: Dissertation
Subject(s): Distribution channels Marketing mix Advertising Product quality Signaling
Abstract: This dissertation involves three essays, studying firms' decision-making on marketing mix variables. Specifically, the first essay (Chapter 2) studies the effects of distribution channels on firms' advertising content decision. In many markets, consumers may not have full information of product features and prices when they shop. While consumers can search to acquire such information, manufacturers and retailers often advertise price, product, or both types of information to help resolve consumers' uncertainty. This chapter studies manufacturers' and retailers' advertising content decisions in either a centralized channel or a decentralized channel, in a market where advertising affects consumers' search behaviors and purchase decisions. I show that in a decentralized channel, advertising may include more information than in a centralized channel. Specifically, when a retailer in a decentralized channel makes its advertising decision before the manufacturer and the retailer decide on prices, it prefers more price-product advertising than in a centralized channel; otherwise, it prefers more price-only advertising and more price-product advertising than in a centralized channel. I also show that in a decentralized channel where the manufacturer decides on product advertising and the retailer decides on price advertising, there will be more price-only advertising than in a centralized channel. Finally, I examine the consequent effects of advertising strategies in different distribution channels on channel members' profitability, consumer welfare and social welfare. The second essay (Chapter 3) studies the effects of channel structure and types of consumer heterogeneity on a manufacturer's product quality decision. I show that a manufacturer's product quality decision depends on both its channel structure and the type of consumer heterogeneity. When consumers are heterogeneous either vertically on their willingness-to-pay for product quality or horizontally on their transaction costs, a manufacturer will provide the same or lower product quality in a decentralized channel than in a centralized channel. However, when consumers are heterogeneous on both their willingness-to-pay for product quality and transaction costs, a manufacturer may even offer higher product quality in a decentralized channel than in a centralized channel under certain conditions, and consumers, as well as the distribution channel, can benefit from an increase of consumer transaction cost. The third essay (Chapter 4) studies how firms with high service quality (i.e. the high-type) can use tipping policy to signal their service quality and distinguish from firms with low service quality (i.e. the low-type) when consumers are comprised of informed and uninformed consumers. I characterize the conditions under which tipping policy together with complete information price can be effective signal device. In addition, I show that when the ratio of the informed consumers to uninformed consumers is low, if the high-type's optimal decision is to choose to have a tipping policy under complete information, it will signal with a tipping policy together with a distorted price. Furthermore, I show that even when the high-type's optimal decision is non-tipping policy under complete information, it might strategically adopt a tipping policy to signal its service quality.
Issue Date: 2011-05-25
URI: http://hdl.handle.net/2142/24089
Rights Information: Copyright 2011 Hongyan Shi
Date Available in IDEALS: 2011-05-25
Date Deposited: 2011-05
 

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