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Manufacturer's pricing strategy for supply chain with warranty period-dependent demand

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  • Chen, Xu
  • Li, Ling
  • Zhou, Ming
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    Abstract

    This article presents a review of the issues associated with a manufacturer's pricing strategies in a two-echelon supply chain that comprises one manufacturer and two competing retailers, with warranty period-dependent demands. The manufacturer, as a Stackelberg leader, specifies wholesale prices to two competing retailers who face warranty period-dependent demand and have different sales costs. The manufacturer considers three pricing options: (1) setting the same price for both retailers, while disregarding their difference with regard to sales cost; (2) setting a different price to each retailer on the basis of their sales cost; and (3) setting the same price to both retailers according to the average sales cost of the industry. In this article, the retailers' optimal warranty periods and their optimal profit, manufacturer's optimal wholesale price, and his/her optimal profit associated with different pricing strategies have been derived using the game theory. Our analysis shows that the results for retailers are the same with Strategy 1 or Strategy 3. In addition, we compared the effects of different pricing strategies of the manufacturer on supply chain decisions and profit. We conclude from the results that the manufacturer should either adopt Strategy 2 with symmetrical sales cost information or Strategy 3 if retailers' sales costs are asymmetrical.

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    Bibliographic Info

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 40 (2012)
    Issue (Month): 6 ()
    Pages: 807-816

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    Handle: RePEc:eee:jomega:v:40:y:2012:i:6:p:807-816

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    Keywords: Supply chain management; Pricing; Game theory; Warranty period-dependent demand;

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    Cited by:
    1. Jörnsten, Kurt & Lise Nonås, Sigrid & Sandal, Leif & Ubøe, Jan, 2013. "Mixed contracts for the newsvendor problem with real options and discrete demand," Omega, Elsevier, vol. 41(5), pages 809-819.
    2. He, Yuanjie, 2013. "Sequential price and quantity decisions under supply and demand risks," International Journal of Production Economics, Elsevier, vol. 141(2), pages 541-551.
    3. Liu, Zhongyi & Chen, Lihua & Li, Ling & Zhai, Xin, 2014. "Risk hedging in a supply chain: Option vs. price discount," International Journal of Production Economics, Elsevier, vol. 151(C), pages 112-120.
    4. Chen, Xu & Hao, Gang & Li, Ling, 2014. "Channel coordination with a loss-averse retailer and option contracts," International Journal of Production Economics, Elsevier, vol. 150(C), pages 52-57.

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