Optimal two-period pricing strategies in a dual-channel supply chain considering market change

Abstract

This paper considers a dual-channel supply chain consisting of one manufacturer with an online direct channel and one offline retailer who distributes the manufacturer’s products, both of whom may adopt a Different or Same price strategy over two periods (Strategy D or S). Strategy D(S) means that the manufacturer and retailer set different(same) retail prices for online and offline channels in the two sales periods. The main purposes of this research are to identify the manufacturer’s and the retailer’s optimal two-period pricing strategy and explore how consumers’ channel preference, price competition, and market change affect the strategy equilibrium. We derive and compare the equilibrium outcomes by establishing four game models: (1) Model SS, both the manufacturer and retailer adopt Strategy S; (2) Model SD, the manufacturer chooses Strategy S while the retailer selects Strategy D; (3) Model DS, the manufacturer chooses Strategy D while the retailer selects Strategy S; (4) Model DD, both choose Strategy D. The research findings demonstrate that most prices increase as the market change rate raises, except for the first-period prices under Model DD, which remain unchanged. Under the different prices settings, a shrinking market would impel supply chain members to utilize a skimming pricing strategy, while a growing market drives them to select a penetration pricing strategy. Different from traditional wisdom, Strategy D would always benefit the manufacturer, while it may hurt the retailer and the whole supply chain under certain conditions. Accordingly, either Strategy DS or DD may be the Nash equilibrium. After considering the consumers’ channel switching behavior, the retailer has more incentive to adopt Strategy S in a shrinking market.