I appreciate authors’ efforts to improve the paper, especially the analysis of the supplier selection.

The core of the paper is simple. From a system’s perspective, the shared structure enjoys two advantages: 1) the cost reduction because of production consolidation, $latex max_i$ instead of $latex sum_i$; 2) a monopolist supplier instead of two competing supplier, which further improves system efficiency (the monopolist’s centralized decision dominates the decentralized ones by two independent suppliers; he further differentiates qualities to soften the competition). Therefore, the shared structure (suppliers + retailers) is more efficient and profitable than the independent structure. In particular, we have property (P): the quality and profit gaps between two retailers are larger in the shared structure than in the independent structure.

The main flaw of the paper is in its attempt to use the property (P) as the main rationale to explain the retailers’ channel structure choice. But the channel…

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