Selling by clicks or leasing by bricks? A dynamic game for pricing durable products in a dual-channel supply chain

Abstract

<p style='text-indent:20px;'>In this paper, we discuss if and which pricing policies by a manufacturer who sells its products online motivate a retailer as an independent part to enter the market to provide selling and leasing options through a brick store. Moreover, the impact of online shopping preferences and brand image on end-user behavior is examined, and different consumption patterns are considered. For this purpose, a dynamic game is applied to model a supply chain consisting of one manufacturer and one retailer. The model aims to specify the optimal pricing policies in the second-hand market and according to physical utility associated with depreciation, brand image, and online shopping preferences for different end-users in an infinite time horizon. Markov perfect equilibria are considered as the solution concept to predict the behavior of end-users in the long term. The results revealed that enriching brand image always benefits the manufacturer and the retailer, while it does not mean there is the same optimal brand image level for both manufacturer and retailer. Besides, the improvement of physical utility makes more demand for leasing products and motivates the retailer to be active in the market. Notably, online shopping preferences play a prominent role in market segmentation and retailer decision as a result. Also, growing production costs have a significant reverse effect on the profitability of both manufacturer and retailer. Therefore, the manufacturer must focus on economic production.</p>