Dual distribution is a situation where a manufacturer decides to distribute its products directly (using its own distributors) and, at the same time, hire independent distributors (who have no ownership relationship with the manufacturer).
Dual distribution derives its name from the fact that two means of distribution are used simultaneously: one owned and one contracted.
It is then a mixture of the two basic distribution options available to a manufacturer. One is to vertically integrate and take over all distribution activities all the way to the end consumer, and the other is to outsource these activities and pay others to carry them out.
While choosing a dual distribution is perfectly legal, in some cases it raises competitive concerns. Indeed, in dual distribution, the manufacturer competes at two levels:
- At the manufacturer level: It competes with other companies that make products that are possible substitutes.
- At the distribution level: Compete with independent distributors in the sale of their own products.
It is at this last level that there is a risk of limiting competition when the manufacturer imposes restrictions (for example, minimum prices or other conditions of sale) on its independent distributors.
Notwithstanding the foregoing, the competitive relationship between distributors is not entirely clear and has often confused the competition authorities. On the one hand, when the manufacturer only uses external distributors, it can impose certain restrictions without major problems. However, when you decide to include your own distributors, the same restrictions can be classified as illegal.
To achieve a consistent analysis, competition authorities should look at the incentives that underpin the choice of distributor. Below, we review some of the main arguments for analysis:
- In general, dual distribution does not increase the market power of a manufacturer. In other words, it would not be useful to be able to increase prices and gain more margin since any price increase at the retail level could also do it at the production level.
- Having your own distributors could increase efficiency if independent distributors focus on areas where it is more difficult for the manufacturer to get there unaided.
- Own distributors can help gather relevant information and monitor the behavior of independents.
- The rational thing is that the manufacturer seeks that its distribution system is as efficient as possible and not that it increases its costs.
Also, it is important to see the degree of competition in the manufacturer's market. If you face many competitors, you will not be able to increase your prices with dual distribution. In any case, any competitive analysis of the dual distribution must be carried out individually.Distribution channels
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