Final answer:
Profit expectations of channel members are influenced by market demand, cost structures, competition, value addition, and negotiation power.
Step-by-step explanation:
The amount of profit a channel member expects depends on factors like market demand, cost structures, competition, the value added by the channel member, and their negotiation power with manufacturers and consumers. Careful preparation and an understanding of market dynamics are critical in determining the profits for channel members. A business strategy built on sound economic principles and competitive analysis, considering the possibility of collusion or competition, influences the profit outcomes.
For example, in a situation where two firms, Firm A and Firm B, consider the risks and gains of cheating in a collusion scenario, their expected profits would adjust accordingly. Firm A, being the larger, will not find enough incentive to cheat for a small gain as it faces significant profit loss if both cheat. Thus, an equilibrium where neither cheats is likely, with Firm A earning a steady profit while maintaining market order.