Supplier’s Information Strategy in the Presence of a Dominant Retailer

Abstract

Speedy development of the large-sized retail outlets empowers the emergence of dominant retailers, as a result of power transformation from suppliers to retailers. In this paper, we model a market comprised of a dominant entrant retailer, a weaker incumbent counterpart, and a common supplier from which both retailers source products. The retailers are quantity-competing, and the dominant retailer is entitled to determine the wholesale price it purchases, while the incumbent retailer accepts the price offered by the supplier. Besides, the incumbent retailer is assumed to hold private information about market demand. We investigate the collaboration strategy for the supplier which either cooperates with the dominant entrant retailer or with the vulnerable incumbent counterpart. Our result reveals that the supplier’s strategy depends on subtle considerations of multiple factors such as terminal market demand state, the demand fluctuation, the expected market demand and the dominant retailer’s wholesale price.