Game theoretical approach to price a product under two-echelon supply chain containing e-tail selling channel

Abstract

In this study, pricing decisions are investigated on a dual-channel supply chain including one manufacturer and multiple retailers. The manufacturer sells a product through the internet and through the retail channel, simultaneously. It is assumed that the market is controlled by the manufacturer. Thus, the manufacturer becomes leader and the retailers perform as followers. In this setting, the Bertrand and collusion game-theoretic models are developed to analyse the pricing strategies among the retailers. Then, the equilibrium decisions are compared and some managerial insights are presented. It is found that the manufacturer's profit and the profit of the whole system given by the Bertrand game are higher than by the collusion, while this inference is reversed for the retailers' profits. Moreover, larger the number of the retailers in the retail channel leads to lower retailers' profits, whereas the manufacturer's profit and the profit of the whole system increase.