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Competition under manufacturer service and retail price

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  • Lu, Jye-Chyi
  • Tsao, Yu-Chung
  • Charoensiriwath, Chayakrit
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    Abstract

    This research highlights the importance of service from manufacturers in the interactions between two competing manufacturers and their common retailer, facing end consumers who are sensitive to both retail price and manufacturer service. A game-theoretic framework is applied to obtain the equilibrium solutions for every entity. This article studies and compares results from three possible supply chain scenarios, (1) Manufacturer Stackelberg, (2) Retailer Stackelberg, and (3) Vertical Nash. This research concludes that consumers receive higher service level when every channel member possesses equal bargaining power (e.g., Vertical Nash). An interesting result shows that as the market base of one product increases, the competitor also benefits but at a lesser amount than the manufacturer of the first product. Furthermore, when one manufacturer has some economic advantage in providing service, the retailer will act to separate market segment by selling the product with low-cost/lower-quality service at a low price and selling the product with high-cost/high-quality service at a high price. The results and the modeling approach are useful references for managerial decisions and administrations.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 28 (2011)
    Issue (Month): 3 (May)
    Pages: 1256-1264

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    Handle: RePEc:eee:ecmode:v:28:y:2011:i:3:p:1256-1264

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Bargaining power Horizontal strategic interaction Manufacturer service Retail pricing Supply chain management Vertical strategic interaction;

    References

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    Cited by:
    1. Safa, Nader Sohrabi & Ismail, Maizatul Akmar, 2013. "A customer loyalty formation model in electronic commerce," Economic Modelling, Elsevier, vol. 35(C), pages 559-564.
    2. Zhang, Rong & Liu, Bin & Wang, Wenliang, 2012. "Pricing decisions in a dual channels system with different power structures," Economic Modelling, Elsevier, vol. 29(2), pages 523-533.
    3. Ma, Peng & Wang, Haiyan & Shang, Jennifer, 2013. "Supply chain channel strategies with quality and marketing effort-dependent demand," International Journal of Production Economics, Elsevier, vol. 144(2), pages 572-581.
    4. Giri, B.C. & Sharma, S., 2014. "Manufacturer's pricing strategy in a two-level supply chain with competing retailers and advertising cost dependent demand," Economic Modelling, Elsevier, vol. 38(C), pages 102-111.

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