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Patterns of credible commitments: territory and brand selectivity in industrial distribution channnels

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Why do forms in distribution channels agree to limit their dealings to a small subset of other firms? We propose a new theoretical rationale based on transaction cost reasoning that explains the paired existence of selectivity agreements in marketing channel relationships. Literature advance explanations that focus on one party in a relationship desiring some degree of exclusivity from the other. In contrast, we focus on the strategy and motivation of both parties in a channel relationship, treating the decisions as interrelated. We suggest that both the decision by a manufacturer to limit the number of intermediaries operating in a specific geographic market and the decision by a distributor to limit brand assortment in a product category can be understood as an exchange of pledges, or credible commitments. Selectivity agreements counterbalance exposure to opportunism and neutralize sources of relationship instability, thereby promoting exchange and strengthening an interorganizational relationship

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/Inseadwp1995/95-69.pdf

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Copyright INSEAD. All rights reserved