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doi: 10.3934/jimo.2020173
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Impacts of horizontal mergers on dual-channel supply chain

Xi Zhao and  Teng Niu ,

College of Management and Economics, Tianjin University, Nankai District, Tianjin 300072, China

* Corresponding author: Teng Niu

Received  January 2020 Revised  August 2020 Early access December 2020

This paper investigates the impacts of horizontal mergers on a dual-channel supply chain given the rapid development of e-commerce. Three types of horizontal mergers are considered in a dual-channel supply chain consisting of three firm types: suppliers, single-channel retailer, and dual-channel retailer. A comparison with a benchmark pre-merger scenario underscores the impacts of each horizontal merger on firms in the dual-channel supply chain. First, where horizontal mergers occur (i.e., at upstream or downstream tier) has an impact on firms in the dual-channel supply chain. Second, synergy costs trigger the domination of the synergy effect. Third, the degree of consumer preference for channels affects the trigger due to which the synergy effect outweighs the competitive effect. Although dual channels prevail in supply chain management, few studies pay attention to horizontal mergers in this context. Unlike literature on horizontal mergers in single-channel supply chains, we suggest that the impacts of horizontal mergers in dual-channel supply chains have unique features, and channel preference plays an important role in such impacts.

Keywords: Horizontal mergers, dual-channel supply chain, channel preference, synergy effect, competitive effect.
Mathematics Subject Classification: Primary: 91B42, 91B54; Secondary: 91A06.
Citation: Xi Zhao, Teng Niu. Impacts of horizontal mergers on dual-channel supply chain. Journal of Industrial & Management Optimization, doi: 10.3934/jimo.2020173
References:
[1]

A. Arya and B. Mittendorf, Bricks-and-mortar entry by online retailers in the presence of consumer sales taxes, Management Science, 64 (2018), 5220-5233.  doi: 10.1287/mnsc.2017.2910.  Google Scholar

[2]

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J. Cao, K. C. So and S. Y. Yin, Impact of an "online-to-store" channel on demand allocation, pricing and profitability, European Journal of Operational Research, 248 (2016), 234-245.  doi: 10.1016/j.ejor.2015.07.014.  Google Scholar

[4]

W.-Y. K. Chiang, D. Chhajed and J. D. Hess, Direct-marketing, indirect profits: A strategic analysis of dual-channel supply-chain design, Management Science, 49 (2003), 1-20.  doi: 10.1287/mnsc.49.1.1.12749.  Google Scholar

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S.-H. Cho, Horizontal mergers in multitier decentralized supply chains, Management Science, 60 (2014), 356-379.  doi: 10.1287/mnsc.2013.1762.  Google Scholar

[6]

S. H. Cho and X. Wang, Newsvendor mergers, Management Science, 63 (2017), 298-316.   Google Scholar

[7]

C. J. Corbett and U. S. Karmarkar, Competition and structure in serial supply chains with deterministic demand, Management Science, 47 (2001), 966-978.   Google Scholar

[8]

M. Cunha and H. Vasconcelos, Mergers in stackelberg markets with efficiency gains, Journal of Industry Competition & Trade, 15 (2015), 105-134.  doi: 10.1007/s10842-014-0182-4.  Google Scholar

[9]

C. Davidson and A. Mukherjee, Horizontal mergers with free entry, International Journal of Industrial Organization, 25 (2007), 157-172.   Google Scholar

[10]

M. Escrihuela-Villar and R. Faulí-Oller, Mergers in asymmetric stackelberg markets, Spanish Economic Review, 10 (2008), 279-288.  doi: 10.1007/s10108-007-9038-y.  Google Scholar

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J. Farrell and C. Shapiro, Horizontal mergers: An equilibrium analysis, The American Economic Review, 80 (1990), 107-126.   Google Scholar

[12]

L. Froeb, S. Tschantz and G. J. Werden, Pass-through rates and the price effects of mergers, International Journal of Industrial Organization, 23 (2005), 703-715.   Google Scholar

[13]

C. Fumagalli and M. Motta, Upstream mergers, downstream mergers, and secret vertical contracts, Research in Economics, 55 (2001), 275-289.  doi: 10.1006/reec.2000.0255.  Google Scholar

[14]

F. Gao and X. Su, Omnichannel retail operations with buy-online-and-pick-up-in-store, Management Science, 63 (2017), 2478-2492.  doi: 10.1287/mnsc.2016.2473.  Google Scholar

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F. Gao and X. M. Su, Online and offline information for omnichannel retailing, Service Operations Management, 19 (2017), 84-98.   Google Scholar

[16]

J. S. Heywood and M. McGinty, Leading and merging: Convex costs, stackelberg, and the merger paradox, Southern Economic Journal, 74 (2008), 879-893.   Google Scholar

[17]

R. Inderst and G. Shaffer, Retail mergers, buyer power and product variety, Economic Journal, 117 (2007), 45-67.  doi: 10.1111/j.1468-0297.2007.02001.x.  Google Scholar

[18]

R. Inderst and C. Wey, The incentives for takeover in oligopoly, International Journal of Industrial Organization, 22 (2004), 1067-1089.  doi: 10.1016/j.ijindorg.2004.05.005.  Google Scholar

[19]

G. J. Kyparisis and C. Koulamas, Competition in two-tier serial and assembly supply chains with general consumer utility functions, International Journal of Production Research, 56 (2018), 5854-5865.  doi: 10.1080/00207543.2018.1478463.  Google Scholar

[20]

Y. F. Lan, H. Yan, D. Ren and R. Guo, Merger strategies in a supply chain with asymmetric capital-constrained retailers upon market power dependent trade credit, Omega-International Journal of Management Science, 83 (2019), 299-318.  doi: 10.1016/j.omega.2018.08.009.  Google Scholar

[21]

C.-C. Liu and L. F. S. Wang, Leading merger in a stackelberg oligopoly: Profitability and consumer welfare, Economics Letters, 129 (2015), 1-3.  doi: 10.1016/j.econlet.2015.01.032.  Google Scholar

[22]

H. Liu, S. Sun, M. Lei, H. Deng and G. K. Leong, The impact of retailers' alliance on manufacturer's profit in a dual-channel structure, International Journal of Production Research, 55 (2017), 6592-6607.  doi: 10.1080/00207543.2017.1330563.  Google Scholar

[23]

K. E. Lommerud, O. R. Straume and L. Sorgard, Downstream merger with upstream market power, European Economic Review, 49 (2005), 717-743.  doi: 10.1016/S0014-2921(03)00068-0.  Google Scholar

[24]

K. Meyer, What is "strategic asset seeking fdi"?, Multinational Business Review, 23 (2015), 57-66.  doi: 10.4337/9781788978927.00027.  Google Scholar

[25]

C. Milliou and A. Pavlou, Upstream mergers, downstream competition, and r & d investments, Journal of Economics & Management Strategy, 22 (2013), 787-809.  doi: 10.1111/jems.12034.  Google Scholar

[26]

M. K. Perry and R. H. Porter, Oligopoly and the incentive for horizontal merger, The American Economic Review, 75 (1985), 219-227.   Google Scholar

[27] S. W. Salant, S. Switzer and R. J. Reynolds, Losses from Horizontal Merger: The Effects of An Exogenous Change in Industry Structure on Cournot-Nash Equilibrium, Cambridge University Press, Cambridge, 1989.  doi: 10.1017/CBO9780511528231.022.  Google Scholar
[28]

G. Symeonidis, Downstream merger and welfare in a bilateral oligopoly, International Journal of Industrial Organization, 28 (2010), 230-243.  doi: 10.1016/j.ijindorg.2009.08.004.  Google Scholar

[29]

W. Wang, G. Li and T. C. E. Cheng, Channel selection in a supply chain with a multi-channel retailer: The role of channel operating costs, International Journal of Production Economics, 173 (2016), 54-65.  doi: 10.1016/j.ijpe.2015.12.004.  Google Scholar

[30]

Y. Xiao, Horizontal mergers under yield uncertainty, Production and Operations Management, 29 (2020), 24-34.  doi: 10.1111/poms.13071.  Google Scholar

[31]

G. Y. Xu, B. Dan, X. M. Zhang and C. Liu, Coordinating a dual-channel supply chain with risk-averse under a two-way revenue sharing contract, International Journal of Production Economics, 147 (2014), 171-179.   Google Scholar

[32]

Z. N. Yuan, F. Y. Chen, X. M. Yan and Y. G. Yu, Operational implications of yield uncertainty in mergers and acquisitions, International Journal of Production Economics, 219 (2020), 248-258.   Google Scholar

[33]

W. Zhou, Endogenous horizontal mergers under cost uncertainty, International Journal of Industrial Organization, 26 (2008), 903-912.  doi: 10.1016/j.ijindorg.2006.10.010.  Google Scholar

[34]

J. Zhu, T. Boyaci and S. Ray, Effects of upstream and downstream mergers on supply chain profitability, European Journal of Operational Research, 249 (2016), 131-143.  doi: 10.1016/j.ejor.2015.08.030.  Google Scholar

show all references

References:
[1]

A. Arya and B. Mittendorf, Bricks-and-mortar entry by online retailers in the presence of consumer sales taxes, Management Science, 64 (2018), 5220-5233.  doi: 10.1287/mnsc.2017.2910.  Google Scholar

[2]

K. Bimpikis, S. Ehsani and R. Ilkilic, Cournot competition in networked markets, Association for Computing Machinery, (2014), 733. doi: 10.1145/2600057.2602882.  Google Scholar

[3]

J. Cao, K. C. So and S. Y. Yin, Impact of an "online-to-store" channel on demand allocation, pricing and profitability, European Journal of Operational Research, 248 (2016), 234-245.  doi: 10.1016/j.ejor.2015.07.014.  Google Scholar

[4]

W.-Y. K. Chiang, D. Chhajed and J. D. Hess, Direct-marketing, indirect profits: A strategic analysis of dual-channel supply-chain design, Management Science, 49 (2003), 1-20.  doi: 10.1287/mnsc.49.1.1.12749.  Google Scholar

[5]

S.-H. Cho, Horizontal mergers in multitier decentralized supply chains, Management Science, 60 (2014), 356-379.  doi: 10.1287/mnsc.2013.1762.  Google Scholar

[6]

S. H. Cho and X. Wang, Newsvendor mergers, Management Science, 63 (2017), 298-316.   Google Scholar

[7]

C. J. Corbett and U. S. Karmarkar, Competition and structure in serial supply chains with deterministic demand, Management Science, 47 (2001), 966-978.   Google Scholar

[8]

M. Cunha and H. Vasconcelos, Mergers in stackelberg markets with efficiency gains, Journal of Industry Competition & Trade, 15 (2015), 105-134.  doi: 10.1007/s10842-014-0182-4.  Google Scholar

[9]

C. Davidson and A. Mukherjee, Horizontal mergers with free entry, International Journal of Industrial Organization, 25 (2007), 157-172.   Google Scholar

[10]

M. Escrihuela-Villar and R. Faulí-Oller, Mergers in asymmetric stackelberg markets, Spanish Economic Review, 10 (2008), 279-288.  doi: 10.1007/s10108-007-9038-y.  Google Scholar

[11]

J. Farrell and C. Shapiro, Horizontal mergers: An equilibrium analysis, The American Economic Review, 80 (1990), 107-126.   Google Scholar

[12]

L. Froeb, S. Tschantz and G. J. Werden, Pass-through rates and the price effects of mergers, International Journal of Industrial Organization, 23 (2005), 703-715.   Google Scholar

[13]

C. Fumagalli and M. Motta, Upstream mergers, downstream mergers, and secret vertical contracts, Research in Economics, 55 (2001), 275-289.  doi: 10.1006/reec.2000.0255.  Google Scholar

[14]

F. Gao and X. Su, Omnichannel retail operations with buy-online-and-pick-up-in-store, Management Science, 63 (2017), 2478-2492.  doi: 10.1287/mnsc.2016.2473.  Google Scholar

[15]

F. Gao and X. M. Su, Online and offline information for omnichannel retailing, Service Operations Management, 19 (2017), 84-98.   Google Scholar

[16]

J. S. Heywood and M. McGinty, Leading and merging: Convex costs, stackelberg, and the merger paradox, Southern Economic Journal, 74 (2008), 879-893.   Google Scholar

[17]

R. Inderst and G. Shaffer, Retail mergers, buyer power and product variety, Economic Journal, 117 (2007), 45-67.  doi: 10.1111/j.1468-0297.2007.02001.x.  Google Scholar

[18]

R. Inderst and C. Wey, The incentives for takeover in oligopoly, International Journal of Industrial Organization, 22 (2004), 1067-1089.  doi: 10.1016/j.ijindorg.2004.05.005.  Google Scholar

[19]

G. J. Kyparisis and C. Koulamas, Competition in two-tier serial and assembly supply chains with general consumer utility functions, International Journal of Production Research, 56 (2018), 5854-5865.  doi: 10.1080/00207543.2018.1478463.  Google Scholar

[20]

Y. F. Lan, H. Yan, D. Ren and R. Guo, Merger strategies in a supply chain with asymmetric capital-constrained retailers upon market power dependent trade credit, Omega-International Journal of Management Science, 83 (2019), 299-318.  doi: 10.1016/j.omega.2018.08.009.  Google Scholar

[21]

C.-C. Liu and L. F. S. Wang, Leading merger in a stackelberg oligopoly: Profitability and consumer welfare, Economics Letters, 129 (2015), 1-3.  doi: 10.1016/j.econlet.2015.01.032.  Google Scholar

[22]

H. Liu, S. Sun, M. Lei, H. Deng and G. K. Leong, The impact of retailers' alliance on manufacturer's profit in a dual-channel structure, International Journal of Production Research, 55 (2017), 6592-6607.  doi: 10.1080/00207543.2017.1330563.  Google Scholar

[23]

K. E. Lommerud, O. R. Straume and L. Sorgard, Downstream merger with upstream market power, European Economic Review, 49 (2005), 717-743.  doi: 10.1016/S0014-2921(03)00068-0.  Google Scholar

[24]

K. Meyer, What is "strategic asset seeking fdi"?, Multinational Business Review, 23 (2015), 57-66.  doi: 10.4337/9781788978927.00027.  Google Scholar

[25]

C. Milliou and A. Pavlou, Upstream mergers, downstream competition, and r & d investments, Journal of Economics & Management Strategy, 22 (2013), 787-809.  doi: 10.1111/jems.12034.  Google Scholar

[26]

M. K. Perry and R. H. Porter, Oligopoly and the incentive for horizontal merger, The American Economic Review, 75 (1985), 219-227.   Google Scholar

[27] S. W. Salant, S. Switzer and R. J. Reynolds, Losses from Horizontal Merger: The Effects of An Exogenous Change in Industry Structure on Cournot-Nash Equilibrium, Cambridge University Press, Cambridge, 1989.  doi: 10.1017/CBO9780511528231.022.  Google Scholar
[28]

G. Symeonidis, Downstream merger and welfare in a bilateral oligopoly, International Journal of Industrial Organization, 28 (2010), 230-243.  doi: 10.1016/j.ijindorg.2009.08.004.  Google Scholar

[29]

W. Wang, G. Li and T. C. E. Cheng, Channel selection in a supply chain with a multi-channel retailer: The role of channel operating costs, International Journal of Production Economics, 173 (2016), 54-65.  doi: 10.1016/j.ijpe.2015.12.004.  Google Scholar

[30]

Y. Xiao, Horizontal mergers under yield uncertainty, Production and Operations Management, 29 (2020), 24-34.  doi: 10.1111/poms.13071.  Google Scholar

[31]

G. Y. Xu, B. Dan, X. M. Zhang and C. Liu, Coordinating a dual-channel supply chain with risk-averse under a two-way revenue sharing contract, International Journal of Production Economics, 147 (2014), 171-179.   Google Scholar

[32]

Z. N. Yuan, F. Y. Chen, X. M. Yan and Y. G. Yu, Operational implications of yield uncertainty in mergers and acquisitions, International Journal of Production Economics, 219 (2020), 248-258.   Google Scholar

[33]

W. Zhou, Endogenous horizontal mergers under cost uncertainty, International Journal of Industrial Organization, 26 (2008), 903-912.  doi: 10.1016/j.ijindorg.2006.10.010.  Google Scholar

[34]

J. Zhu, T. Boyaci and S. Ray, Effects of upstream and downstream mergers on supply chain profitability, European Journal of Operational Research, 249 (2016), 131-143.  doi: 10.1016/j.ejor.2015.08.030.  Google Scholar

Figure 1.  The structure of a dual-channel supply chain
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Figure 2.  The structure of an upstream merger
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Figure 3.  The structure of a SS merger
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Figure 4.  The structure of a DS merger
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Figure 5.  Aggregate effect of the upstream merger on the profits
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Figure 6.  Aggregate effect of the SS merger on the profits
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Figure 7.  Aggregate effect of the DS merger on the profits
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