Asymmetric retailers’ sales effort competition in the presence of a manufacturer’s help

Abstract

In this study, we build a game theory model to examine whether two asymmetric retailers exert sales effort in the face of a manufacturer’s help with cost-sharing and direct investment strategies and examine the effects of sales effort competition and help strategy on operational decisions and channel member profits. The retailers make sales effort decisions based on the manufacturer’s choice of assisting one or both asymmetric retailers. We discover that helping both parties induces the weak retailer to exert a high level of effort, whereas helping neither results in a low level of effort. The dominant retailer experiences the opposite outcome. When the dominant retailer does not exert sales effort, the weak retailer will set a high retail price. Furthermore, the manufacturer’s assistance may reduce the incentive of the retailers to exert sales effort and investment in sales effort is determined by their cost differences and the efficiency of the manufacturer’s assistance. Moreover, when no retailer exerts sales effort, the manufacturer will only assist the weak retailer in achieving a higher profit margin. When at least one retailer exerts sales effort, the manufacturer can always benefit from assisting the retailers. However, even if the dominant retailer has more channel power, it may not be optimal for the manufacturer to assist the dominant retailer.