Dual channels of distribution: a transaction cost analysis and propositions

The existence of dual or multiple channels of distribution consisting of independent distributors in combination with producer-owned distribution channels has been documented by several researchers, and some of them find indications that dual or multiple channels of distribution are likely to become more widespread in the future. This article briefly reviews the empirical studies on and theorizing about dual channels of distribution. Then mainstream transaction cost theory is explained and used to advance eleven propositions delimiting when dual channels of distribution are efficient. Most of the propositions are explained by differences in transaction-specific investments, uncertainty, transaction frequency and the institutional environment. The rest of the propositions are based on synergistic explanations such as dual systems induce competition, they result in higher powered incentives, and they provide better information.