Outsourcing Retail Pricing to a Category Captain: The Role of Information Firewalls

It has been argued that retailers lack both the resources and capabilities to maximize category performance. Retailers may seek category management (CM) advice from a manufacturer, referred to as a category captain (CC). A CC's recommendations affect all brands in the category, not just her own. Despite an increase in the number of CC collaborations, retailers are still concerned about manufacturer opportunism and militant behavior by manufacturers not selected as CCs, whereas government agencies are worried about anticompetitive behavior that could harm consumers. The Federal Trade Commission recommends strictly enforced information firewalls within a CC's organization as a best-practice guideline. In this study we develop an empirical model and use policy simulations to quantify the impact of CC arrangements with information firewalls on retailers, manufacturers, and consumers. We show how these effects could be influenced by the (de)activation of vertical and horizontal information firewalls within the CC's organization.