Retail Free Riding: The Case of the Wallpaper Industry

Abstract

Many businesses require multichannel strategies to provide the services that consumers desire. However, channel conflict often frustrates the strategies of manufacturers selling through full- and limited-service retailers. The wallpaper industry presents a data-rich opportunity to document, over more than a thirty-year period, the responses of full-service retailers to the entry of limited-service retailers and the difficulties of manufacturers selling through both. We also review the marketing literature on the challenges of limiting distribution to “optimal coverage.” After the entry of free riding 1–800 dealers, we show that full-service dealers cut back important services and decreased service-oriented advertising, likely contributing to the sharp decline in wallpaper retailers and consumer purchases. However, we are unable to control for shifts in consumer preferences during the period of our study. Thus, our case study also highlights the empirical challenges of isolating the effects of free riding on industry output when consumer tastes change.