Strategic Choice of Channel Structure in an Oligopoly

The traditional wisdom holds that the benefits of a decentralized channel structure arise from downstream competitive relationships. In contrast, in their 2007 paper in the Accounting Review, Arya and Mittendorf show that the value of decentralization can also come from the upstream relationship when the downstream firms convey internal strife (decentralization) to an upstream input supplier. This paper demonstrates that the Arya and Mittendorf result continues to hold irrespective of the market structure of the upstream input market. However, if the upstream market is monopolized and the monopoly supplier follows a uniform price policy, decentralization may not result from the centralization–decentralization game.