Probabilistic Selling, Channel Structure, and Supplier Competition

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John Wiley & Sons, Inc.


Probabilistic selling has recently been introduced to facilitate consumer segmentation. It allows the retailer to mix products from multiple competing suppliers to generate a probabilistic good. The probabilistic good effectively creates consumer differentiation, and its presence invites extensive interactions among channel participants. In this article, we show that the equilibrium channel structure may be asymmetric: one supplier retains his brand-name product and the other one delegates to the retailer. We further show that this asymmetric equilibrium can be mutually beneficial for all firms compared with other equilibria. In addition, the introduction of the probabilistic good is beneficial to the channel members.