Abstract
This paper studies the implication of channel discrepancy between the retail and direct channels in a dual-channel supply chain consisting of one common retailer and two manufacturers in which the manufacturers may have different market powers. Each manufacturer provides a substitutable product and opens an online channel to customers directly. We develop an analytical model to derive the optimal pricing strategies by using game theory and the backward induction method, and we examine related properties under three market power structures while considering channel discrepancy, including the Nash equilibrium, the Manufacturers leader Stackelberg, and the M1 leader Stackelberg models (denoted as the N, MS, and M1S models, respectively). Numerical simulations are examined to reveal and verify the effect of channel discrepancy on optimal prices, demands, and profits. We find that a higher level of channel discrepancy induces higher prices, demands, and profits for each member in both channels, while this kind of stimulating impact for the leader manufacturer who obtains a higher level of channel discrepancy will be more significant than it is for the other members in the three models. In addition, the profit of the supply chain in the N model is always higher than it is in the MS model, while it may be higher or lower than it is in the M1S model depending on the level of channel discrepancy.
Highlights
Because information technology (IT) has developed rapidly, many manufacturers can sell products through their own direct channels conveniently, which increases competition with the traditional brick-and-mortar retail channel [1, 2]. e competition between retail and direct channels is distinct for different manufacturers, who provide various products or services to adjust their direct channel strategies [3, 4]
When a manufacturer pays more attention to its direct channel construction—such as by increasing product diversity, reducing delivery time, and providing better after-sale service—the channel discrepancy of a manufacturer between the retail and direct channels will become greater. By focusing on this phenomenon in the market, we develop a mathematical model in a dual-channel supply chain consisting of two manufacturers and one common retailer, in which the two manufacturers sell substitutable products from their own direct channels and a common retail channel, to explore the following two questions
To explore how the market power structure impacts the optimal strategies of each channel member, we discuss three different models in the following parts, that is, the Nash equilibrium model (N model), the Manufacturers leader Stackelberg model (MS model), and the M1 leader Stackelberg model (M1S model)
Summary
Because information technology (IT) has developed rapidly, many manufacturers can sell products through their own direct (online) channels conveniently, which increases competition with the traditional brick-and-mortar retail channel [1, 2]. e competition between retail and direct channels is distinct for different manufacturers, who provide various products or services to adjust their direct channel strategies [3, 4]. When a manufacturer pays more attention to its direct channel construction—such as by increasing product diversity, reducing delivery time, and providing better after-sale service—the channel discrepancy of a manufacturer between the retail and direct channels will become greater By focusing on this phenomenon in the market, we develop a mathematical model in a dual-channel supply chain consisting of two manufacturers and one common retailer (denoted as M1, M2, and R, respectively), in which the two manufacturers sell substitutable products from their own direct channels and a common retail channel, to explore the following two questions. Jena and Sarmah [10] studied the price and service competition between two remanufacturing firms who sell their substitutable products through a common retailer and provide service directly to the end customers None of these studies have considered the effect of the manufacturer’s channel discrepancy on optimal strategies and profits.
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