New Product Distribution and Inter-Channel Competition: Market-Making, Market-Taking, and Competitive Effects in Several European Countries

The authors examine first-time sales of brands in a new category of consumer durable as a function of patterns of retail coverage. New brands in new categories of durables pose substantial risks, both for consumers (influencing their adoption of the innovation) and for retailers (influencing their decision to carry the brand). The authors hypothesize that certain channels of distribution act as "scouts" and that other distribution channels ("troops") follow their leadership by copying their decisions to increase or decrease coverage in a new category of consumer durable. The authors also analyze how a particular category of retailer, the all-under-one-roof value store, influences both its competitors' coverage decisions and consumers' adoption patterns. The authors examine whether retail availability drives sales (market-making), responds to sales (market-taking), or both simultaneously. In an empirical study, the authors estimate a simultaneous model of sales and coverage for two brands of 32-bit video game consoles when they were introduced in five different retail environments in Europe. This study provides evidence of mimetic isomorphism -certain types of retailers imitate the stocking decisions of other types who act as leaders in some markets. Furthermore, the results indicate that all-under-one-roof value stores are not destructive to competition, and that sales in these stores may even boost sales in other channels. Finally, the authors show that distribution channels engage in both market-making and market-taking, sometimes simultaneously.