Price incentives and channel cooperation

Price incentives are widely used in manufacturer–distributor relationships to promote cooperation, yet their effects are not always linear. This research investigates the nuanced impact of price incentives on distributor cooperation using a common agency theory perspective, considering distributor’s simultaneous relationships with multiple suppliers. Across three studies, we find consistent evidence of an inverted U-shaped effect of price incentives on cooperation. Moderate, above-market discounts foster gratitude toward the focal principal, boosting cooperation, while very high incentives raise disruption concerns regarding other suppliers, reducing cooperation. Study 1 demonstrates this curvilinear pattern in a real-world setting and shows that it is attenuated by offsetting treatment and amplified by competitive intensity. Studies 2 and 3 establish causal evidence for the dual mediating mechanisms (i.e., gratitude and disruption concerns). The findings provide theoretical insight into the affective processes driving distributor behavior and offer practical guidance for crafting incentive strategies to optimize cooperative outcomes.