channel control

Definition:
A function of the firm's competitive strength vis-à-vis other members of a CHANNEL OF DISTRIBUTION. In general the dominant members are either producers or user/consumers, but there are situations where the channel intermediary may be dominant and so condition the structure and operation of the channel. The latter situation is most likely to occur where both producers and users are small and the market is geographically dispersed, and is equally true of retailers/wholesalers in the consumer goods market as it is of the industrial goods wholesaler. Overall, dominance or control is determined by a number of factors which may be summarized as: buyer/seller concentration ratios in terms of production/consumption, and spatial relationships. Technical complexity: in the case of technically complex products, dominance will be conditioned by the relative sophistication of the producer vis-à-vis the intermediary and/or user. Thus, a small firm may exercise a considerable influence over much larger users or intermediaries. Service requirements: the more complex these are the more likely it is that the producer will exercise control. In the final analysis, however, the determining factor is economic advantage, i.e. which channel member can perform the necessary channel functions at the lowest cost consistent with the required degree of efficiency. At a given point in time the structure of a trade channel serves as a rough and ready guide as to the relative efficiency of its members,-but it is clear that over time environmental changes may predicate the adoption of an alternative structure to meet better the needs of users/ consumers. Similarly, lack of control may persuade a channel member to modify his policies in order to protect his position - a tendency which is implicit in Galbraith's concept of COUNTERVAILING POWER.

Cross-References:
[countervailing power] [channel (of distribution)]

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