This study focuses on manufacturers' selection of dual or indirect channels. Although several previous studies based on transaction cost theory investigate transaction cost factors in choosing dual or indirect channels mainly in the United States, this study examines transaction costs and capability factors for such a choice in Japan. The relationships are tested with survey data from Japanese industrial goods manufacturers (n = 429). Compared to previous studies, this study presents three important findings. First, unlike previous studies, two transaction cost factors—asset specificity and behavioral uncertainty—do not exhibit the relationships predicted by transaction cost theory. Interestingly, asset specificity is negatively related to the use of dual channels. Second, two capability factors not assessed in prior studies—market orientation capabilities and differences in channel members' capabilities—exhibit significant positive relationships with the selection of dual channels. Third, capability factors are found to be more important than transaction cost factors in explaining dual or indirect channels in Japan. This study also discusses the influence of the Japanese channel context on the results.
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