Impacts of supply chain leadership on dynamic pricing under consumer patience information asymmetry

Abstract

AbstractAs the online market rapidly develops, firms will face strategic consumers who differ in buying times. Given that the leadership structure in supply chains affects the chain members' decision‐making and performance, we study this impact in a two‐period dynamic pricing setting with an upstream manufacturer and a downstream retailer, where the patience degree of consumers is the retailer's private information. We examine two leadership scenarios: retailer dominance and manufacturer dominance. The two members play a signaling game under retailer dominance, whereas the manufacturer can only set its wholesale price based on its prior belief under manufacturer dominance. Our analysis indicates that when consumers are more patient, the retailer tends to share its private information with the manufacturer under retailer dominance to avoid the reduction of its retail margin and enhance its profitability. However, the retailer may keep the consumers' patience information private when the manufacturer dominates the supply chain because the manufacturer will set a compromised wholesale price and passively cede profits to the retailer. Finally, we examine consumer surplus and social welfare. We demonstrate that retailer dominance is the Pareto optimal strategy.