Channel integration/centralization understood as joint pricing of multiple channels is touted
as the ideal organization to maximize the profitability of multichannel retailers. This study
challenges this claim and analytically examines with two two-period models whether multichannel
retailers should centralize or decentralize online and offline pricing decisions when
vertical channel interactions and consumer reference price effects are considered. We found
that under certain conditions (which depend on several factors, including the manufacturer’s
advertising strategies over the two periods, the intensity of price competition between channels,
and the consumers’ sensitivity to price changes over time), the retailer may find it optimal
to centralize or decentralize online and offline pricing decisions. Therefore, our findings
support the idea that multichannel retailing integration is not a panacea, especially in a context
where complex vertical interactions with manufacturers are taken into account and
where consumers compare current market prices to recent past prices at the time of
purchase.
