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Strategic wholesale pricing in a supply chain with a potential entrant


  • Xiao, Tiaojun
  • Qi, Xiangtong


This paper develops an adverse selection model for a two-stage supply chain with one supplier, one retailer, and a potential outside entrant supplier who makes a partially substitutable product. The work is different from most research on entry deterrence that only considers a single-stage model. Our main interest is to investigate how the incumbent supplier can strategically maximize her profit by a wholesale pricing policy when facing the potential entrant. We focus on a model where the entrant supplier will sell her product through the same incumbent retailer. We derive the optimal decisions for each player and study the comparative statics of the equilibrium. To investigate how the supply chain structure may affect the deterrence strategy of the incumbent supplier, we also consider three alternative models with different channel structures, when both suppliers sell their products directly, when the entrant has another independent retailer, and when the entrant sells her product directly. Through the comparison, we find that the existence of the common downstream retailer often enhances the deterring motivation of the incumbent supplier.

Suggested Citation

  • Xiao, Tiaojun & Qi, Xiangtong, 2010. "Strategic wholesale pricing in a supply chain with a potential entrant," European Journal of Operational Research, Elsevier, vol. 202(2), pages 444-455, April.
  • Handle: RePEc:eee:ejores:v:202:y:2010:i:2:p:444-455

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    References listed on IDEAS

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    Cited by:

    1. Tiaojun Xiao & Tsan Ming Choi & Danqin Yang & T. C. E. Cheng, 2012. "Service Commitment Strategy and Pricing Decisions in Retail Supply Chains with Risk-Averse Players," Service Science, INFORMS, vol. 4(3), pages 236-252, September.
    2. Zhou, Yong-Wu & Cao, Zong-Hong & Zhong, Yuanguang, 2015. "Pricing and alliance selection for a dominant retailer with an upstream entry," European Journal of Operational Research, Elsevier, vol. 243(1), pages 211-223.
    3. repec:eee:ejores:v:267:y:2018:i:2:p:540-554 is not listed on IDEAS
    4. Karaer, Özgen & Erhun, Feryal, 2015. "Quality and entry deterrence," European Journal of Operational Research, Elsevier, vol. 240(1), pages 292-303.
    5. Rezapour, Shabnam & Farahani, Reza Zanjirani & Dullaert, Wout & De Borger, Bruno, 2014. "Designing a new supply chain for competition against an existing supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 67(C), pages 124-140.
    6. Wang, Yulan & Wallace, Stein W. & Shen, Bin & Choi, Tsan-Ming, 2015. "Service supply chain management: A review of operational models," European Journal of Operational Research, Elsevier, vol. 247(3), pages 685-698.


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