Manufacturer Encroachment in the Presence of Production Economies of Scale
Bibliographic record
Abstract
It is well established that a manufacturer generally benefits from encroachment with a profitable direct channel and may also benefit from using encroachment as a threat (i.e., without sales in the direct channel); the retailer may also benefit from both encroachment strategies. Our study provides new insights into the manufacturer encroachment literature by considering the upstream manufacturer's production economies of scale. Contrary to conventional wisdom, we show that an increasing level of economies of scale may reduce the manufacturer's profit if the manufacturer encroaches. Furthermore, we find that under strong economies of scale, refraining from encroachment may be the optimal strategy, even if encroachment could increase the manufacturer's wholesale profit. This finding suggests that a manufacturer may choose not to encroach solely due to profit losses in direct selling. Interestingly, we also find that the manufacturer can benefit from encroachment by maintaining an unprofitable direct channel with sales, provided that the level of economies of scale is below a threshold. Moreover, our findings reveal that the retailer can benefit from manufacturer encroachment only when the level of economies of scale remains below this threshold, and that an increasing level of economies of scale reduces the likelihood that the retailer can benefit.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.001 | 0.000 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.000 | 0.000 |
| Bibliometrics | 0.000 | 0.000 |
| Science and technology studies | 0.000 | 0.000 |
| Scholarly communication | 0.000 | 0.000 |
| Open science | 0.000 | 0.000 |
| Research integrity | 0.000 | 0.000 |
| Insufficient payload (model declined to judge) | 0.000 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".