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  • We study the impact of product differentiation on different distribution systems in a supplychain. Our market is characterized by an asymmetric supply chain with two retailersand three manufacturers that each produce one differentiated good. We determine that anon-exclusive distribution system is a Nash equilibrium for all degrees of product differentiationbetween the three goods. Furthermore, we assess the welfare implications of variousdistribution systems. We identify that the non-exclusive equilibrium channel structure providesthe highest social welfare and highest consumer surplus for all degrees of productdifferentiation. Aside from that, we find a strong incentive for the manufacturers to forman exclusive selling cartel for close substitutes, which would cause a Pareto improvementfor all firms but harm overall welfare.
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