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Competition under manufacturer service and retail price

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

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.

Suggested Citation

  • Lu, Jye-Chyi & Tsao, Yu-Chung & Charoensiriwath, Chayakrit, 2011. "Competition under manufacturer service and retail price," Economic Modelling, Elsevier, vol. 28(3), pages 1256-1264, May.
  • Handle: RePEc:eee:ecmode:v:28:y:2011:i:3:p:1256-1264
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Chen, Jingxian & Liang, Liang & Yang, Feng, 2015. "Cooperative quality investment in outsourcing," International Journal of Production Economics, Elsevier, vol. 162(C), pages 174-191.
    3. Ji, Jingna & Zhang, Zhiyong & Yang, Lei, 2017. "Comparisons of initial carbon allowance allocation rules in an O2O retail supply chain with the cap-and-trade regulation," International Journal of Production Economics, Elsevier, vol. 187(C), pages 68-84.
    4. repec:eee:apmaco:v:250:y:2015:i:c:p:580-592 is not listed on IDEAS
    5. 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.
    6. repec:eee:touman:v:62:y:2017:i:c:p:302-311 is not listed on IDEAS
    7. Jose A. Guajardo & Morris A. Cohen & Serguei Netessine, 2016. "Service Competition and Product Quality in the U.S. Automobile Industry," Management Science, INFORMS, vol. 62(7), pages 1860-1877, July.
    8. Li, Gang & Huang, Feng Feng & Cheng, T.C.E. & Zheng, Quan & Ji, Ping, 2014. "Make-or-buy service capacity decision in a supply chain providing after-sales service," European Journal of Operational Research, Elsevier, vol. 239(2), pages 377-388.
    9. Liu, Weihua & Liu, Yang & Zhu, Donglei & Wang, Yijia & Liang, Zhicheng, 2016. "The influences of demand disruption on logistics service supply chain coordination: A comparison of three coordination modes," International Journal of Production Economics, Elsevier, vol. 179(C), pages 59-76.
    10. 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.
    11. repec:eee:joreco:v:40:y:2018:i:c:p:40-47 is not listed on IDEAS
    12. Chen, Tsung-Hui & Tsao, Yu-Chung, 2014. "Optimal lot-sizing integration policy under learning and rework effects in a manufacturer–retailer chain," International Journal of Production Economics, Elsevier, vol. 155(C), pages 239-248.
    13. Safa, Nader Sohrabi & Ismail, Maizatul Akmar, 2013. "A customer loyalty formation model in electronic commerce," Economic Modelling, Elsevier, vol. 35(C), pages 559-564.
    14. repec:spr:annopr:v:248:y:2017:i:1:d:10.1007_s10479-016-2228-y is not listed on IDEAS
    15. Sarkar, Biswajit & Saren, Sharmila & Wee, Hui-Ming, 2013. "An inventory model with variable demand, component cost and selling price for deteriorating items," Economic Modelling, Elsevier, vol. 30(C), pages 306-310.

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