Ž . Intern. J. of Research in Marketing 17 2000 331–351 www.elsevier.comrlocaterijresmar Market information and channel price structure Abhik Roy ) Department of Business Studies, Hong Kong Polytechnic UniÕersity, Hung Hom, Kowloon, Hong Kong, China Received 1 September 1999; accepted 5 December 2000 Abstract An analytical model is developed that considers the effect of demand information, and the precision with which demand forecasts are made, on channel profitability. Different channel price structures such as Stackelberg and Vertically integrated are considered and comparisons are made of the impact of information precision on channel profits under each structure. Other demand factors such as brand substitutability and share of base level demand are also included in the analysis, and the interaction of information and demand effects is examined. An empirical study is carried out using a sample of firms based in Hong Kong and support is found for the model propositions. q 2000 Elsevier Science B.V. All rights reserved. Keywords: Demand information; Pricing; Channel profitability; Channel structure and coordination; Stackelberg system 1. Introduction A considerable volume of research has been de- voted to the study of channel structure and profita- Ž . bility. For example McGuire and Staelin 1983 , Ž . Ž . Jeuland and Shugan 1983 , Coughlan 1985 and Ž . Moorthy 1988 examine the role of competitive Ž . price behavior; Shugan 1985 the role of implicit Ž . understanding; Coughlan and Wernerfelt 1989 the impact of collusion between channel members and the effects of non-uniform pricing; Jeuland and Ž . Shugan 1988 the effect of conjectures on profits; Ž . Chintagunta and Jain 1992 the role of marketing activities in a dynamic context; Ingene and Parry Ž . 1995 the profit impact of different channel coordi- nating and non-coordinating price schemes; Trivedi Ž . 1998 the effect of horizontal-channel competition, at the retail level, on channel profitability. ) Tel.: q 852-2766-7107; fax: q 852-2765-0611. Ž . E-mail address: buroya@polyu.edu.hk A. Roy . Much of this work focuses on competition, either of the horizontal-channel type, between manufacturer and manufacturer, or retailer and retailer, as the major force shaping the distribution channel. Shugan Ž . and Jeuland 1988 use channel-system competition, which has been referred to as ‘intertype competition’, to study the profits of different channel structures. The role of information, specifically information about market demand, in shaping the institution of distribution channels has received relatively little attention. Most of the economics literature in this area focuses on information sharing between Ž . oligopolists Raith, 1996; Vives, 1984; Gal-Or, 1985 and the incentives that firms have to share private information with each other. Information-theory ap- proaches have been used to explain the structure of Ž competition between manufacturers Malueg and . Tsutsui, 1996; Raju and Roy, 1998 . We posit that the issue of information sharing within a channel is at least as important as that between competing firms, partly because information sharing is much 0167-8116r00r$ - see front matter q 2000 Elsevier Science B.V. All rights reserved. Ž . PII: S0167-8116 00 00027-6