Independent sales or bundling? Decisions under different market-dominant powers

Abstract

Enterprises are aware that bundling strategies can improve profitability in the highly competitive marketplace. This study evaluates an online to offline (O2O) supply chain system made up of a supplier and an e-retailer who can sell two products independently or bundled through online and offline channels, and discuss the influence of pricing strategy and channel choice on profit under different market-dominant powers. Based on a game theory model, we derive an optimal wholesale price for the supplier, an optimal sale price for the e-retailer, and their respective profit. We demonstrate that a Stackelberg leader is more profitable, irrespective of whether independent sales or bundling are chosen. Regardless of who the leader is, the whole supply chain receive equal profit. For a market leader, independent sales or bundling decisions should be made according to market size. Sensitivity analysis show that as the self-price sensitivity coefficient increases, the profit monotonically decreases for both independent sales and bundling; this occur for both the market dominated by the supplier and that dominated by the e-retailer. For independent sales, as the cross-price sensitivity coefficient increases, the profit monotonically increases; for bundled sales, the profit of the game players is not affected.