Channel and Pricing Strategy of Competing Retailers in a Two-Stage Supply Chain

Abstract

This article considers a two-stage supply chain consisting of a supplier and two competing multichannel retailers and examines their channel and pricing strategies. The supplier wholesales a product to the retailers who resell the product to consumers with different channel preferences. The retailers can either operate their online and offline channels separately and apply differential pricing strategy, or choose to integrate the channels and adopt unified pricing strategy. We establish a game-theoretical model to derive the optimal wholesale price of the supplier and equilibrium retailing prices of the two retailers, and investigate the impact of consumer structure and channel integration ability on the prices, demands, and profits. We then analyze the effect of channel integration and discuss the equilibrium strategy. We find no adoption, asymmetric adoption, and symmetric adoption of channel integration strategy are all possible equilibria. However, one or the both retailers can be worse off in the competition, while the supplier can be always better off if any retailer integrates the channels. Our results suggest that retailers should be very cautious when deciding whether to integrate channels under competition, and the supplier could design other mechanisms to encourage the retailers to integrate their channels.