Modeling And Solving A Pricing Problem Considering Substitutable Products In A Dual Supply Chain With Internet And Traditional Distribution Channels

Abstract

This paper studies the pricing problem in a supply chain consisting of two manufacturers who whether sell their substitutable products to an independent retailer or sell them directly to consumers through their own Internet channels. Channel and brand competition is considered for each product whose demand function is stochastic and linear. The objective function is to maximize the manufacturers and the retailer profits. Three decentralized pricing policy are developed and the corresponding analytical equilibrium solutions are obtained using the game-theoretic approach for Nash and Stackelberg games. Numerical examples are presented to study the effectiveness of each policy. The results indicate that brand loyalty enhancement is profitable for both the manufacturers and the retailer. Furthermore, a limited increase in service value may decrease the threat of the direct Internet channel for the retailer while increasing the manufacturers’ profit.