Original design manufacturer's warranty strategy when considering retailers' brand power under different power structures

Abstract

AbstractIn recent years, the original design manufacturer (ODM) has increasing interests in multichannel cooperation with different retailers. This paper considers the problem in which the ODM cooperates with two competing retailers. The manufacturer produces two substitute products and markets them through two competing retailers. For both products, the manufacturer bundles them with basic warranties and the retailers brand them with their own branding. We quantitatively model the product demands and derive the optimal decisions under two common supply chain power structures: manufacturer Stackelberg and retailer Stackelberg. We observe that when the competition between the two retailers becomes fiercer, the manufacturer charges more for both products, the product substitutability and supply chain power structures do not affect the products' price and warranty decisions, and there does exist a brand ratio interval in which the product branded by the high‐reputation retailer will not get a better warranty from the manufacturer, violating the signalization of the warranty. The leader gets the power to get higher profit while the total profit of the whole supply chain remains the same under both power structures.