Service level, pricing strategy and firm performance in a manufacturer‐giant retailer supply chain

Abstract

Purpose – The purpose of this paper is to provide a framework to help the manufacturer and the giant retailer to obtain optimal service level, pricing strategy, and market structure in order to maximize their respective profits.Design/methodology/approach – A profit‐maximization model is developed to determine the optimal service level, pricing strategy, and market structure for supply chain players.Findings – Using a profit‐maximization model, it is demonstrated that optimal service level and pricing strategy exist under different market structures in a manufacturer‐giant retailer supply chain. In order to maximize their respective profits, the manufacturer and the giant retailer should cooperatively employ a coordinative market structure as an optimal market structure and a bargaining model can be utilized to implement profit sharing for the manufacturer and giant retailer to optimize their profits. Furthermore, it is also shown that the value of coordinative structure always increases with the customer...