Rival Retailers Research Articles

Physical stores versus physical showrooms: Channel structures of online retailers

To meet consumers’ expectations for experiential shopping, an increasing number of online retailers are expanding offline channels, with physical showrooms and physical showrooms emerging as the two most popular offline channel modes. Both channels can match consumers’ demand for on-site experiences. However, the two modes differ in terms of service cost, demand promotion efficiency, and channel differentiation generation. The article considers three channel structures: a single online channel, an online channel with physical stores, and an online channel with physical showrooms, as well as two scenarios: non-competitive and competitive. This study examines whether online retailers should integrate offline channels and which offline channel mode they should use by comparing the profit changes of themselves and rivals when three channel structures are adopted in two scenarios. It is found that: (i) If there is a significant difference between the online and physical store channels, providing physical stores help online retailer raise profits. If the physical showroom is highly effective at promoting demand, omnichannel retailers will dominate the entire online market, and expanding physical showrooms is always profitable; (ii) Whether in a competitive or non-competitive environment, online retailers should weigh channel differentiation and the efficiency of the offline channel modes in promoting demand to select the best channel mode; (iii) Due to channel differentiation, online retailers’ creation of physical stores, as well as increasing competition among physical stores, will have no impact on rival retailers. However, providing physical showrooms will result in lower sales volume and revenue for rival retailers.

Wholesale Price Discrimination and Contract Unobservability

This study examines how wholesale price discrimination (WD) by a supplier affects different parties in a supply chain involving a common supplier distributing homogeneous products through two competing retailers with different costs under wholesale price contracts. Especially, we allow for contract unobservability, where the contract terms between the supplier and each retailer are secret to the rival retailer. Intuitively, given the downstream asymmetry, WD should be more advantageous than the uniform wholesale price (UW) scheme for the supplier. This is true under observable contracts, as we show that WD benefits the supplier and less efficient retailer but hurts the more efficient retailer, supply chain, and consumers. Under unobservability, however, we find that the supplier may be better off by committing to UW. The intuition is that contract unobservability induces the supplier to set lower discretionary wholesale prices, which can outweigh the benefits of pricing flexibility. Consequently, a lack of commitment to UW can benefit both retailers, improve supply chain efficiency, and increase consumer surplus. Our findings suggest that policymakers should be cautious about imposing restrictions on WD. We also consider three extensions for robustness and offer new insights.

A closed-loop green supply chain with retailers' competition and product recycling in the green environment under the cap-and-trade policy

<abstract><p>Nowadays, product recycling has become an effective strategy for manufacturing industries to achieve sustainable development due to the scarcity of natural resources, waste management, and greenhouse gas emissions. This study considered an imperfect production-based competitive supply chain model for product recycling in an emission-reduction environment under a cap-and-trade scheme. The manufacturer invests in green technology to restrict carbon emissions during production. The recycler collects used items at a recovery rate depending on the buy-back price and environmental awareness effort. The rival retailers compete against each other for the retail price and promotional effort. The linear type of market demand depends on the retail price, promotional effort, and green level of the product. The proposed model was analyzed analytically and numerically under one centralized system, five decentralized systems, three Stackelberg, and two Nash game structures. Numerical examples and sensitivity analysis of the key parameters were studied to justify the feasibility of the proposed model. The present study revealed that the centralized scenario is mostly preferable for supply chain profit. The manufacturer-Stackelberg 1 scenario is most profitable for the manufacturer, whereas the two retailers collect maximum individual profit in the vertical Nash 2 model, where they jointly play the game. Moreover, retail price plays a crucial role in optimizing individual retailers' profits in the competitive market. In connection with the environmental aspects, the government should offer lower carbon caps to curtail excessive emissions and restrict the selling of excess carbon quotas.</p></abstract>

The pricing strategies of online grocery retailers

This paper documents the differences in pricing strategies between online and offline (brick-and-mortar) channels. We collect price data for identical products from leading online grocery retailers in the United States and complement it with offline data for the same products from scanner data. Our findings reveal a consistent pattern: online retailers exhibit higher price dispersion than their offline counterparts. More specifically, online grocers employ price algorithms that amplify price discrimination in three key dimensions: (1) over time (through frequent price changes), (2) across locations (by charging varying prices based on delivery zipcodes), and (3) across sellers (by setting dispersed prices for identical products across rival retailers).

Capacity coordination under uncertain yield for supply chains with a single supplier and two competing retailers

The product’s yield rates of somewhat unpredictable due to their innovative and sophisticated manufacturing processes, and as a result, the demand for downstream supplier chain members may not always be satisfied. Therefore, contractual agreements are often established to facilitate order fulfilment between suppliers and retailers and thus sustain their cooperative partnerships. This study considers a supply chain, in which a single supplier cooperates with long-term and newly cooperating retailers and develops a game-theoretic model to investigate the optimal capacity allocation strategy for the supply chain. In considering the supplier’s uncertain capacity and competition from the other rival retailer, both retailers will tend to order more than they actually need to avoid possible shortage loss. However, this may strengthen the bullwhip effect and damage the effectiveness of the supply chain. A strategic capacity allocation mechanism with contractual agreements is adopted to prevent distortion of order quantities and also to ensure that the retailers can receive their minimal acceptable quantities. In addition, it is determined that revenue-sharing coordination will mitigate the bullwhip effect and enhance profits for the entire supply chain. The results indicate that the proposed approach will make it possible for the long-term cooperating retailer to honestly place orders.

Impact of the arm’s length regulation on a supply chain with asymmetric retailers

In many supply chains, suppliers that provide a key component to retailers in the wholesale market also have their own retail divisions in the retail market and form vertically integrated producers (VIPs) with these divisions. A VIP’s profit comes from two sources: (i) the wholesale profit from supplying the key component to retailers and (ii) the retail profit from its own retail division. In this situation, the VIP’s intra-company discount is often restricted by the arm’s length regulation (ALR) to induce fair competition in the retail market and improve the consumer benefit. However, the ALR may not always result in the desired outcome, especially when the retailers are asymmetric. Thus motivated, we investigate the impact of the ALR on the supply chain profit and the consumer benefit. Our analysis incorporates two types of asymmetry commonly observed among retailers: (i) retailer-specific selling costs and (ii) private information regarding the intra-company discount. Our results have several important implications. First, the ALR improves the supply chain profit only when the rival retailer is more competitive than the VIP’s retailer. Also, the ALR benefits consumers when the rival retailer is more competitive and the competition intensity is low. Second, under information asymmetry, while the rival retailer would not benefit from the VIP’s private information, the VIP’s gain does not always outweigh the rival retailer’s loss. Hence, the total supply chain profit may increase with the ALR. In addition, the consumer surplus can increase under information asymmetry unless the VIP’s intra-company discount is extremely limited.

Effects of green innovation and advertisement in an imperfect production‐based competitive supply chain under two‐tier credit facility

This article investigates game‐theoretic approaches in a competitive supply chain model with imperfect production and a two‐tier credit facility under the environment of carbon emissions. In this environment, we incorporate a manufacturer and two rival retailers who compete against one another for selling price and advertisement of a product, where the members offer trade credit facilities to the downstream players. We consider that the manufacturer invests in green technology to curtail the emission during the production and rework process. The retailers provide advertisements to expand their businesses, where market demands are dependent on their selling prices, advertisement frequencies, and the green innovation level. Here, we analyze the model under the cap‐and‐trade policy for various subcases of the centralized and decentralized systems and discuss a solution algorithm for the optimal results. For the practical feasibility test of the model, numerical analysis is examined, and the impact of variations of the critical parameters is studied. The study's primary motive is to figure out the optimal operative strategies and collaborative actions on the decision variables, which leads to the profits of the supply chain to a lofty extent. We observe that the offered credit periods are highly responsive to the profit functions so that the chain members have to be more careful and draw a compact plan for credit policy. Moreover, the manufacturer has to invest in green technology up to a certain level, as, after that level, high investment costs will hamper the optimal profit. Besides, the retailers must have adequate policies for selling prices and advertisement frequencies to acquire a higher yield.

A Risk-based Competitive Bi-level Framework for Operation of Active Distribution Networks with Networked Microgrids

This paper presents a risk-based competitive bi-level framework for optimal decision-making in energy sales by a distribution company (DISCO) in an active distribution network (ADN). At the upper level of this framework, the DISCO and a rival retailer compete for selling energy. The DISCO intends to maximize its profit in the competitive market. Therefore., it is very important for the DISCO to make a decision and offer an optimal price for attracting customers and winning the competition. Networked microgrids (MGs) at the lower level, as the costumers, intend to purchase energy from less expensive sources in order to minimize costs. There is a bi-level framework with two different targets. The genetic algorithm is used to solve this problem. The DISCO needs to be cautious, so it uses the conditional value at risk (CVaR) to reduce the risk and increase the probability of making the desired profit. The effect of this index on the trade between the two levels is studied. The simulation results show that the proposed method can reduce the cost of MGs as the costumers, and can enable the DISCO as the seller to win the competition with its rivals.

Financial Cross-Ownership and Information Dissemination in a Supply Chain

Problem definition: We examine the effect of financial cross-ownership—a situation in which a retailer holds stocks in a competitor—on two crucial operational decisions in a supply chain with competing retailers sourcing from a single supplier: information acquisition and production output. Academic/practical relevance: Financial interconnectedness between competing retailers raises fundamental questions regarding the way information is managed in such markets and the way it affects consumer welfare. Thus, in addition to the relevance to operations management scholars, this subject is of potential interest to policy makers and regulators. Although financial cross-ownership has mainly been unchallenged by regulators, the European Commission has recently called for a deeper understanding of the competitive aspects of this investment tool. Methodology: We develop a game-theoretic model, in which we analyze a supply chain comprised of an incumbent retailer holding stocks in an entrant and both retailers source from a mutual supplier. The incumbent can obtain costless demand information, and the supplier decides whether to leak this information if it is available to him or her. Results: We demonstrate that holding stocks in a rival better aligns the incentives of the rival retailers and results in a lower competition level during the production stage. However, financial cross-ownership can also result in an increased incentive for information acquisition, even when the information is later leaked to the entrant. The acquisition of information benefits not only the retailers but can also make the consumers better off. Managerial implications: Our work contributes to the heated policy debate regarding the competitive effects of financial cross-ownership. In addition, we are the first, to the best of our knowledge, to study the way financial cross-ownership affects operational decisions. Specifically, we show that financial cross-ownership provides incentives to acquire demand information even under the threat of information leakage.

Contract Unobservability and Downstream Competition

Problem definition: In this paper, we consider a supply chain with a manufacturer and two retailers who are contracted through wholesale prices or two-part tariffs. We depart from the existing literature by assuming that contract terms between the manufacturer and a retailer are not observed by the rival retailer. Academic/practical relevance: Although the existing literature typically assumes that they are common knowledge in the market, contract terms may not be observed by rival retailers under certain circumstances. This paper contributes to the literature by studying the effect of contract unobservability on supply chain performance. Methodology: We use game-theoretical methods to find the equilibrium. When there are multiple equilibria, we adopt passive beliefs as an equilibrium-refinement criterion. Results: We find that certain established results regarding observable supply chain contracts do not always apply when those contracts become unobservable to competing retailers. In particular, compared with when using two-part tariff contracts, the manufacturer may benefit from using wholesale-price contracts when contract terms are unobservable. Moreover, the total industry profit may increase under wholesale-price contracts. Managerial implications: Our results offer an alternative explanation for the popularity of wholesale-price contracts and suggest that members of the supply chain must take unobservability into account when selecting the right contracts. We also offer new insights into buyback contracts and downstream mergers under unobservable contracts.

Make or Buy in the Presence of Strategic Competition on Substitutable Products

In this paper, we study make-or-buy decisions with the consideration of retail-level competition, in which a supplier provides substitutable products to two retailers. One incumbent retailer is capable of producing the product in-house and makes the make-or-buy decision, while the rival retailer can only outsource from the supplier. Intuitively, the incumbent will not outsource if the wholesale price is higher than its production cost. However, we illustrate this may not be true when the supplier also supplies the retail rival. In this case, the incumbent may accept a high wholesale price to limit the suppliers incentive to serve the retail rival on particularly favorable terms. Moreover, under certain circumstances, the supplier may charge a wholesale price lower than its production cost to attract orders from the incumbent, which can generate for the supplier and the incumbent a higher total profit than the situation in which the incumbent makes the product in-house.

Omni-channel retailing: Do offline retailers benefit from online reviews?

In the omni-channel retailing era, online reviews are being increasingly integrated into offline channels. In this study we explore the online review integration strategy for a pure offline retailer that takes the initiative to integrate selective online consumer reviews (OCR) from its competing online rival retailer into its in-store sales under two online selling formats. When the online retailer uses the reselling format, we find that the online review integration strategy is viable if the selected OCR are more informative than the offline retailer's in-store information services. However, when the online retailer uses the agency selling format, counter-intuitively, the offline retailer can adopt the same strategy even when the OCR are less informative than the in-store services if the spillover effect is negative, and the travel cost and the unit misfit cost are relatively small. In each case, we find that the offline retailer's review integration strategy mitigates market competition under some conditions, so benefitting the online retailer and/or the manufacturer as well. In the extension, we consider the context in which the offline retailer utilizes third-party reviews (TPR). We find that the offline retailer is willing to adopt TPR as long as its product is recommended by the TPR (under the TPR-only strategy), and it is also beneficial to integrate OCR and TPR simultaneously (under the OCR-TPR strategy). In addition, we compare all the feasible strategies and find that the OCR-TPR strategy is the optimal strategy most of the time.

Contract Unobservability and Downstream Competition

In this paper, we consider a supply chain with a manufacturer and two retailers who are contracted through wholesale prices or two-part tariffs. We depart from the existing literature by assuming that contract terms between the manufacturer and a retailer are not observed by the rival retailer. While the existing literature typically assumes that they are common knowledge in the market, contract terms may not be observed by rival retailers under certain circumstances. This paper contributes to the literature by studying the effect of contract unobservability on supply chain performance. We use game theoretical methods to find the equilibrium. When there are multiple equilibria, we adopt passive beliefs as an equilibrium refinement criterion. We find that certain established results regarding observable supply chain contracts do not always apply when those contracts become unobservable to competing retailers. In particular, compared to when using two-part tariff contracts, the manufacturer may benefit from using wholesale price contracts when contract terms are unobservable. Moreover, the total industry profit may increase under wholesale price contracts. Our results offer an alternative explanation for the popularity of the wholesale price contracts and suggest that members of the supply chain must take unobservability into account when selecting the right contracts. We also offer new insights into buyback contracts and downstream mergers under unobservable contracts.

Pricing of Digital Video Supply Chain: Free versus Paid Service on the Direct Distribution Channel

Media publishers that have commonly relied on profits from advertisements and content sales to fund their operations are not only content providers (manufacturers) to media aggregator platforms (retailers) but are also competing service providers (rival retailers) in the digital video supply chain. Different from a traditional media supply chain, they can easily operate their own direct distribution channels in the Internet era. In the digital video supply chain, it is not clear whether commercialization of the direct distribution channel would be beneficial for the media publisher because it would decrease profits from advertisements. The choice about commercialization should be investigated thoroughly because it is closely related to the media publishers’ sustainability as a public medium in a digital environment. In this study, we analyze the impacts of commercializing the direct distribution channel based on a game-theoretic approach. Specifically, we compare the profits of a media publisher with and without the commercialization of the channel from analyses of sequentially defined games. Our results show that media publishers prefer to use a free service on their direct channel if the content they provide is not highly valued. They can also choose not to provide their content to the media aggregator with a paid service.

THE REGIONAL MARKET ENTRY AND STORE-NETWORK GROWTH OF CHAIN RETAILERS: THE CONVENIENCE STORE INDUSTRY IN JAPAN

THE REGIONAL MARKET ENTRY AND STORE-NETWORK GROWTH OF CHAIN RETAILERS: THE CONVENIENCE STORE INDUSTRY IN JAPAN

Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market

We study price dynamics for computer components sold on a price-comparison website. Our fine-grained data—a year of hourly price data for scores of rival retailers—allow us to estimate a dynamic model of competition, backing out structural estimates of managerial frictions. The estimated frictions are substantial, concentrated in the act of monitoring market conditions rather than entering a new price. We use our model to simulate the counterfactual gains from automated price setting and other managerial changes. Coupled with supporting reduced-form statistical evidence, our analysis provides a window into the process of managerial price setting and the microfoundation of pricing inertia, issues of growing interest in industrial organization and macroeconomics.

Retail Equilibrium with Switching Consumers in Electricity Markets

The ongoing transformations of power systems worldwide pose important challenges, both economic and technical, for their appropriate planning and operation. A key approach to improve the efficiency of these systems is through demand-side management, i.e., to promote the active involvement of consumers in the system. In particular, the current trend is to conceive systems where electricity consumers can vary their load according to real-time price incentives, offered by retailing companies. Under this setting, retail competition plays an important role as inadequate prices or services may entail consumers switching to a rival retailer. In this work we consider a game theoretical model where asymmetric retailers compete in prices to increase their profits by accounting for the utility function of consumers. Consumer preferences for retailers are uncertain and distributed within a Hotelling line. We analytically characterize the equilibrium of a retailer duopoly, establishing its existence and uniqueness conditions for a wide class of utility functions. Furthermore, sensitivities of the equilibrium prices with respect to relevant model parameters are also provided. The duopoly model is extended to a network that includes multiple retailers with capacity constraints for which we perform static and dynamic numerical simulations. Results indicate that, depending on the retailer costs, loyalty rewards and initial market shares, the resulting equilibrium can range from complete competition to one in which a retailer has a leading or even a dominant position in the market, decreasing the consumers’ utility significantly. Moreover, the retailer network configuration also plays an important role in the competitiveness of the system.

Optimal TOU tariff design using robust intuitionistic fuzzy divergence based thresholding

This paper proposes a robust midterm framework to determine optimal time-of-use (TOU) electricity pricing for retailers using intuitionistic fuzzy divergence based thresholding. It will analyze load profile and perform a comprehensive evaluation of load violation and uncertainty as well by exponential intuitionistic fuzzy entropy. The key advantage is that the proposed method will handle uncertain behavior of load and wholesale price with membership and non-membership functions. In the proposed algorithm client response to the retailer prices and the competition among rival retailers have been explicitly taken into account. The proposed scheme can be applied to several pricing policies where the peak-to-average ratio (PAR) will be decreased. The model is implemented on a realistic case in which the superior performance of the proposed method is demonstrated.

Stochastic risk-constraint pricing strategy of electricity retailers based on Dempster-Shafer evidence theory

This paper investigates a bi-level stochastic energy acquisition strategy for electricity retailers with self-generation facilities to supply clients' demand from various resources of energy. The main propose of the presented work is modeling clients' switching behavior based on uncertainties of rival retailers' strategy and wholesale prices. The upper sub-problem models wholesale price fluctuations and determines retailer's participation levels in the forward and wholesale markets as well as scheduling of self-generation facilities based on the minimum supply cost. In the lower sub-problem, the Dempster-Shafer evidence theory (DSET) is applied to determine the retail selling price based on rivals' strategies and clients' switching tendency. DSET defines two belief and plausibility functions to evaluate the possibility of accepting selling prices by clients. According to the retailer's defined belief level and the minimum expected cost, the selling price is calculated in the lower sub-problems. Finally, a case study is used to show the performance of proposed method.

The Effect of Bidimensional Power Structure on Supply Chain Decisions and Performance

Operational decisions made by manufacturers and retailers are often affected by the power relationships of both vertical and horizontal competitions in a supply chain. Although many studies have been carried to assess how the power structure impacts supply chains, most of them only focus on the power dynamics in the vertical competition or horizontal competition. This paper systematically examines the impacts of bidimensional power structure on a supply chain. Considering a triadic setting that is made of two rival retailers and a common manufacturer, we compare the equilibriums for the supply chain and individual firms with five different possible power structures. The analysis results show that the bidimensional power dynamics have a significant impact. Furthermore, the impacts of the bidimensional power structure are also dependent on the nature of customer demand. This paper provides important management implications that are supportive for companies to make strategic and operational decisions.