Stimulating Early Adoption of New Products through Channel Disintegration
By Ram Ramanan, Hemant K. Bhargava
Production and Operations Management | October 2014
DOI
doi.org/10.1111/poms.12066
Citation
Ramanan, Ram., K. Bhargava, Hemant. Stimulating Early Adoption of New Products through Channel Disintegration Production and Operations Management doi.org/10.1111/poms.12066.
Copyright
Production and Operations Management, 2014
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Abstract
Conventional wisdom holds that adding layers to a distribution channel is detrimental to the interests of consumers and the channel that serves them. In contrast, our study indicates that a disintegrated channel structure can be desirable in some instances. When consumers have valuation uncertainty prior to consuming a product, having an independent retailer may boost both channel profits and consumer surplus relative to direct selling by an integrated firm. The quandary in selling such products is that after early adopters make their purchase decisions, the seller may alter prices in such a way that makes early adopters' decisions appear suboptimal in hindsight. Since the seller cannot credibly commit to future prices, customers are reluctant to adopt early, choosing instead to delay their purchase decisions. This delay is certainly detrimental to the interest of the distribution channel, but the rejection of the early adoption discount can equally reduce consumer surplus. This problem can be mitigated by introducing an independent retailer. The familiar double marginalization “problem” from channel disintegration can credibly assure customers of unfavorable future prices for late adoption. This assurance attracts more customers to seek early adoption, leading to lower overall retail prices, increased supply, and higher consumer and producer surpluses.

Ram Ramanan is an Associate Professor of Accounting at the Indian School of Business (ISB). Before joining ISB, he served as a faculty member at the University of California, Davis and at SUNY, Binghamton.

Professor Ramanan’s research focuses on the role of accounting in management decisions. Specifically, he examines the incentive effects of financial reports and disclosures on various managerial decisions both inside an organisation and within supply chains. His work has been published in leading academic journals, including The Accounting Review, Journal of Accounting and Economics, The Review of Accounting Studies, Contemporary Accounting Research, Management Science, and Production and Operations Management.

At ISB Professor Ramanan teaches the core Managerial Accounting course and the elective in Strategic Performance Management.

Professor Ramanan holds a PhD in Accounting from the Kellogg School of Management, Northwestern University, and an MBA from the Indian Institute of Management, Bangalore. He is also a Chartered Accountant.

Nv Ramanan
Ram Ramanan