Abstract
This paper investigates the pricing decisions of foreign manufacturers in international markets within a bargaining framework with asymmetric information and the rental of goodwill. The key findings are: first, the foreign manufacturer follows a mark-up pricing strategy in which its gross margin and the quality premium over the domestic product are shared with the importer. Second, a manufacturer–importer contract occurs only when the manufacturer’s bargaining power is within an admissible range which shrinks as transaction costs increase. Third, the domestic consumer will only purchase the foreign product if the importer’s goodwill in the domestic market is sufficiently large to signal quality. The paper contributes to the literature on exchange relationships between foreign manufacturers and importers.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Abreu, Dilip; Gul Frank. “Bargaining and Reputation,” Econometrica, 68, 1, 2000, 85–117.
Akerlof, George A. “The Market for Lemons: Quality and the Market Mechanism,” Quarterly Journal of Economics, 84, 1970, 488–500.
Anderson, E.; Lodish, L.; Wetz, B. “Resource Allocation Behavior in Conventional Channels,” Journal of Marketing Research, 24, 1987, 85–97.
Boulding, William; Kirmani, Amna. “A Consumer-Side Experimental Examination of Signaling Theory: Do Consumers Perceive Warranties as Signals of Quality?” Journal of Consumer Research, 29, 1993, pp. 111–123.
Chu, Wujin. “Demand Signaling and Screening in Channels of Distribution,” Marketing Science, 11, 4, 1992, 327–47.
Chu, Woosik; Chu, Wujin. “Signaling Quality by Selling Through a Reputable Retailer: An Example of Renting the Reputation of Another Agent,” Marketing Science, 13, 2, 1994, pp. 177–89.
Desai, Preyas S. “Multiple Messages to Retain Retailers: Signaling New Product Demand,” Marketing Science, 19, 4, 2000, pp. 381–9.
Farrell, Carlyle. “Organizational Buyer Behavior of Caribbean Food and Beverage Importers,” Journal of Food Products Marketing, 12, 1, 2006, pp.87–101 (Forthcoming).
Gao, Tao. “The Contingency Framework of Foreign Entry Mode Decisions: Locating and Reinforcing the Weakest Link,” Multinational Business Review, 12, 1, 2004, 37–68.
Ghymn, Kyung-il; Liesch, Peter; Mattsson, Jan. “Australian Import Managers’ Purchasing Decision Behavior: An Empirical Study,” International Marketing Review, 16, 3, 1999, pp. 1202–15.
Hellofs, Linda L.; Jacobson, Robert. “Market Share and Consumers’ Perceptions of Quality: When Can Firms Grow Their Way to Higher versus Lower Quality?” Journal of Marketing, 63, 1999, pp. 16–25.
Johansson, Johny K. Global Marketing, 3rd ed., New York, NY: McGraw-Hill/Irwin, 2003.
Katsikeas, Constantine S.; Percy, Nigel F. “Exporter–Importer and Exporter–Domestic Customer Relationships: Power Considerations,” Management Decisions, 30, 4, 1992, 12–9.
Kihlstrom, Richard E.; Riordan, Michael H. “Advertising as a Signal,” The Journal of Political Economy, 92, 3, 1984, 427–50.
Lariviere, Martin A.; Padmanabhan, V. “Slotting Allowances and New Product Introductions,” Marketing Science, 16, 2, 1997, 112–28.
Matear, Sheelagh; Gray, Brendan J.; Irving, George P. “What Makes a Good Export Channel Relationship?,” Asia Pacific Journal of Management, 17, 2000, 539–59.
Moorthy, Sridhar; Srinivasan, K. “Signaling Quality with a Money-Back Guarantee: The Role of Transaction Costs,” Marketing Science, 14, 4, 1995, pp. 442–66.
Nash, John. “Two Person Cooperative Games,” Econometrica, 21, 1953, 128–40.
Nelson, Phillip. “Information and Consumer Behavior,” Journal of Political Economy, 78, 1970, 311–20.
Rao, Akshay R.; Qu Lu; Ruekert, Robert W. “Signaling Unobservable Product Quality Through a Brand Ally,” Journal of Marketing Research, 36, 2, 1999, 258–68.
Scaramozzino, Pasquale. “Bargaining with Outside Options: Wage and Employment in UK Manufacturing,” The Economic Journal, 101, 1991, pp. 331–42.
Spence, Michael. “Job Market Signaling,” Quarterly Journal of Economics, 87, 3, 1973, pp. 355–74.
Stottinger, Barbara. “Strategic Export Pricing: A Long and Winding Road,” Journal of International Marketing, 9, 1, 2001, pp. 40–63.
Taylor, Charles R.; Zou, Shaoming; Osland, Gregory E. “Foreign Market Entry Strategies of Japanese MNCs,” International Marketing Review, 17, 2, 2000, pp. 146–63.
Tellis, Gerard J.; Wernerfelt, Birger. “Competitive Price and Quality under Asymmetric Information,” Marketing Science, 6, 3, 1987, 240–53.
Wernerfelt, Birger. “Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond,” The Rand Journal of Economics, 19, 3, 1988, 458–66.
Wolinsky, Asher. “Prices as Signals of Product Quality,” The Review of Economic Studies, 50, 4, 1983, pp. 647–58.
Zhao, Hao. “Raising Awareness and Signaling Quality to Uniformed Consumers: A Price-Advertising Model,” Marketing Science, 19, 4, 2000, 390–6.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Farrell, C., Fearon, G. Renting Goodwill in International Marketing Channels: An Analysis of Pricing Strategies and Bargaining Power. Atl Econ J 33, 285–296 (2005). https://doi.org/10.1007/s11293-005-0029-9
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11293-005-0029-9