Abstract
This paper investigates product quality design and shelf investment decision for a manufacturer considering that consumers' perception of product quality can be affected by shelf display in retailing industry. We discuss production quality decision and shelf display investment in decentralized and centralized channel with heterogenous consumers. In decentralized supply chain, the manufacturer first decides his marketing mix, i.e., product quality level and wholesale price, the retailer then determines her shelf display investment and retail price. The subgame perfect Nash equilibrium of the manufacturer- Stackelberg game shows that, comparing with centralized channel, the manufacturer will improve his product quality and the retailer will invest more in shelf display in decentralized channel. The price is also higher than that in centralized channel. In addition, the first-move advantage is achieved in decentralized channel.
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