Models of channel coordination

A distribution channel is inefficient when its members make independent decisions in order to maximize respective payoffs. These decisions include pricing, advertising, service, promotion, order quantity, and information and risk sharing. A channel coordination problem is to reduce or eliminate this inefficiency by finding a mechanism to reduce double marginalization. Studies in channel coordination can be found in the marketing as well as in the operations literature. Traditionally, the former research stream is concerned with designing marketing variables to influence the retail demand for joint profit maximization. The latter stream is mostly concerned with coordinating operational variables for minimizing the total cost of the distribution system. However, more recent studies indicate a rapid convergence between the two research streams. In this chapter, the authors review the literature of static coordination models in these two research streams, organize these models by decision variables, and delineate future research directions.