Implications for the role of retails in quality assurance

Research output: Journal PublicationsJournal Article (refereed)

9 Citations (Scopus)

Abstract

We investigate a manufacturer–retailer channel to explore the role of a retailer in assuring the quality of a manufacturer's product as a quality gatekeeper. Such a gatekeeping activity can entail a reduction in the defective rate for consumers, if the retailer charges the manufacturer a penalty for each identified defect that is no smaller than the market penalty for an unidentified defect. As a result of the retailer's gatekeeping, the change in the negotiated wholesale price only depends on the manufacturer's individual benefit, whereas the change in the retailer's optimal retail price is associated with the channel-wide benefit. When the impact of quality relative to retail price on demand is higher, the retailer benefits more from her gatekeeping activity, thus having a greater incentive to take on the quality gatekeeping responsibility. Moreover, the retailer's gatekeeping generates a larger increase in the demand as well as each firm's profit, when the retailer has a stronger relative bargaining power.
Original languageEnglish
Pages (from-to)779-790
Number of pages12
JournalProduction and Operations Management
Volume25
Issue number5
Early online date26 Aug 2015
DOIs
Publication statusPublished - May 2016

Keywords

  • bargaining
  • pricing; game theory
  • quality gatekeeping

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