Chain-to-Chain Competition under Demand Uncertainty

The type of industry we want to analyze in this paper is comprised of multiple manufacturers, each selling differentiated products through multiple exclusive retailers. The retailers are faced with fixed market prices but uncertain demands. Industries falling in this category include telecommunication industry, fast food chains, gasoline, etc. The manufacturers competition, the retailers competition and the vertical interaction between them are all intertwined with each other. We examine the relations between supply chain structures, product differentiation, and demand uncertainty. The paper makes two contributions. First, we link the analytical marketing literature on channel structures to the supply chain literature on coordination under demand uncertainty. Second, we derive explicit equilibria of different supply chain structures, compare the implications of them, and examine the impact of demand uncertainty.