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Warranty and price optimization in a competitive duopoly supply chain with parallel importation

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  • Taleizadeh, Ata Allah
  • Hadadpour, Shirin
  • Cárdenas-Barrón, Leopoldo Eduardo
  • Shaikh, Ali Akbar

Abstract

Gray market has always been an opposing challenge for manufacturers. Parallel markets tend to purchase the manufacturer's product at a lower price and resell it in another market with a higher price. In order to ameliorate the effects of parallel importation, the offering of a warranty for authorized channels is suggested as a competitive strategy. This paper considers two markets with different levels of willingness to pay. A manufacturer is present at both of these markets and offers the same product with different prices according to each market's willingness to pay. In the market with a lower willingness to pay, the manufacturer's product is not only purchased by a group of customers, but also by the parallel importer who later attempts to sell this product in the market with a higher willingness to pay. Moreover, in the market with lower willingness to pay, the manufacturer competes with another manufacturer that offers a similar product. A model for this problem is proposed when the manufacturer offers warranty as a competitive strategy against the parallel importer at the market with higher willingness to pay. Furthermore, a numerical example and a sensitivity analysis for the model are presented. Additionally, due to the practicality of this problem, managerial insights are included at the end of this research work.

Suggested Citation

  • Taleizadeh, Ata Allah & Hadadpour, Shirin & Cárdenas-Barrón, Leopoldo Eduardo & Shaikh, Ali Akbar, 2017. "Warranty and price optimization in a competitive duopoly supply chain with parallel importation," International Journal of Production Economics, Elsevier, vol. 185(C), pages 76-88.
    • Handle: RePEc:eee:proeco:v:185:y:2017:i:c:p:76-88
    DOI: 10.1016/j.ijpe.2016.12.022
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    Cited by:

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    2. Li, Hai & Shao, Jing & Zhu, Stuart X., 2020. "Impacts of power dynamics and gray markets on supply chains," International Journal of Production Economics, Elsevier, vol. 222(C).
    3. Shi, Xiutian & Tang, Jianxi & Dong, Ciwei, 2022. "Should a domestic firm carve out a niche in overseas markets? Value of purchasing agents," European Journal of Operational Research, Elsevier, vol. 300(1), pages 85-94.
    4. Wang, Yingjia & Lin, Jiaxin & Choi, Tsan-Ming, 2020. "Gray market and counterfeiting in supply chains: A review of the operations literature and implications to luxury industries," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    5. Zhou, Chongwen & Chinnam, Ratna Babu & Dalkiran, Evrim & Korostelev, Alexander, 2017. "Bayesian approach to hazard rate models for early detection of warranty and reliability problems using upstream supply chain information," International Journal of Production Economics, Elsevier, vol. 193(C), pages 316-331.
    6. Zhang, Yong & Zhang, Sheng Hao & Feng, Haofang, 2021. "The impacts of money-back guarantees in the presence of parallel importation," European Journal of Operational Research, Elsevier, vol. 295(1), pages 170-182.
    7. Huang, Hongfu & Liu, Feng & Zhang, Peng, 2021. "To outsource or not to outsource? Warranty service provision strategies considering competition, costs and reliability," International Journal of Production Economics, Elsevier, vol. 242(C).
    8. Taleizadeh, Ata Allah & Sadeghi, Razieh, 2019. "Pricing strategies in the competitive reverse supply chains with traditional and e-channels: A game theoretic approach," International Journal of Production Economics, Elsevier, vol. 215(C), pages 48-60.
    9. Lu, Zhen & Shang, Jennifer, 2019. "Warranty mechanism for pre-owned tech products: Collaboration between E-tailers and online warranty provider," International Journal of Production Economics, Elsevier, vol. 211(C), pages 119-131.
    10. Fang, Chih-Chiang, 2020. "Optimal price and warranty decision for durable products in a competitive duopoly market," Reliability Engineering and System Safety, Elsevier, vol. 203(C).

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