Product variety and channel structure strategy for a retailer-Stackelberg supply chain
Motivated by the observations that the direct sales channel is increasingly used for customized products and that retailers wield leadership, we develop in this paper a retailer-Stackelberg pricing model to investigate the product variety and channel structure strategies of manufacturer in a circular spatial market. To avoid channel conflict, we consider the commonly observed case where the indirect channel sells standard products whereas the direct channel offers custom products. Our analytical results indicate that if the reservation price in the indirect channel is sufficiently low, adding the direct channel raises the unit wholesale price and retail price in the indirect channel due to customization in the direct channel. Despite the fact that dual channels for the retailer may dominate the single indirect channel, we find that the motivation for the manufacturer to use dual channels decreases with the unit production cost, while increases with (i) the marginal cost of variety, (ii) the retailer’s marginal selling cost, and (iii) the customer’s fit cost. Interestingly, our equilibrium analysis demonstrates that it is more likely for the manufacturer to use dual channels under the retailer Stackelberg channel leadership scenario than under the manufacturer Stackelberg scenario if offering a greater variety is very expensive. When offering a greater variety is inexpensive, the decentralization of the indirect channel may invert the manufacturer’s channel structure decision. Furthermore, endogenization of product variety will also invert the channel structure decision if the standard product’s reservation price is sufficiently low.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edirisinghe, N.C.P. & Bichescu, B. & Shi, X., 2011. "Equilibrium analysis of supply chain structures under power imbalance," European Journal of Operational Research, Elsevier, vol. 214(3), pages 568-578, November.
- Marshall L. Fisher & Christopher D. Ittner, 1999. "The Impact of Product Variety on Automobile Assembly Operations: Empirical Evidence and Simulation Analysis," Management Science, INFORMS, vol. 45(6), pages 771-786, June.
- Rajiv Dewan & Bing Jing & Abraham Seidmann, 2003. "Product Customization and Price Competition on the Internet," Management Science, INFORMS, vol. 49(8), pages 1055-1070, August.
- Matsubayashi, Nobuo & Ishii, Yasuaki & Watanabe, Kentaro & Yamada, Yoshiyasu, 2009. "Full-line or specialization strategy? The negative effect of product variety on product line strategy," European Journal of Operational Research, Elsevier, vol. 196(2), pages 795-807, July.
- Sudheer Gupta, 2008. "Research Note—Channel Structure with Knowledge Spillovers," Marketing Science, INFORMS, vol. 27(2), pages 247-261, 03-04.
- Tansev Geylani & Anthony J. Dukes & Kannan Srinivasan, 2007. "Strategic Manufacturer Response to a Dominant Retailer," Marketing Science, INFORMS, vol. 26(2), pages 164-178, 03-04.
- K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management.
- Wei-yu Kevin Chiang & Dilip Chhajed & James D. Hess, 2003. "Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design," Management Science, INFORMS, vol. 49(1), pages 1-20, January.
- Rajagopalan, S. & Xia, Nan, 2012. "Product variety, pricing and differentiation in a supply chain," European Journal of Operational Research, Elsevier, vol. 217(1), pages 84-93.
- Vishal Gaur & Dorothée Honhon, 2006. "Assortment Planning and Inventory Decisions Under a Locational Choice Model," Management Science, INFORMS, vol. 52(10), pages 1528-1543, October.
- Dumrongsiri, Aussadavut & Fan, Ming & Jain, Apurva & Moinzadeh, Kamran, 2008. "A supply chain model with direct and retail channels," European Journal of Operational Research, Elsevier, vol. 187(3), pages 691-718, June.
- Sridhar Balasubramanian, 1998. "Mail versus Mall: A Strategic Analysis of Competition between Direct Marketers and Conventional Retailers," Marketing Science, INFORMS, vol. 17(3), pages 181-195.
- Choi, Sungchul & Fredj, Karima, 2013. "Price competition and store competition: Store brands vs. national brand," European Journal of Operational Research, Elsevier, vol. 225(1), pages 166-178.
- K. Sudhir, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Marketing Science, INFORMS, vol. 20(3), pages 244-264, October.
- Minakshi Trivedi, 1998. "Distribution Channels: An Extension of Exclusive Retailership," Management Science, INFORMS, vol. 44(7), pages 896-909, July.
- Thonemann, Ulrich W. & Bradley, James R., 2002. "The effect of product variety on supply-chain performance," European Journal of Operational Research, Elsevier, vol. 143(3), pages 548-569, December.
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- Nan Xia & S. Rajagopalan, 2009. "Standard vs. Custom Products: Variety, Lead Time, and Price Competition," Marketing Science, INFORMS, vol. 28(5), pages 887-900, 09-10.
- Pan, Kewen & Lai, K.K. & Leung, Stephen C.H. & Xiao, Di, 2010. "Revenue-sharing versus wholesale price mechanisms under different channel power structures," European Journal of Operational Research, Elsevier, vol. 203(2), pages 532-538, June.
- Haim Mendelson & Ali K. Parlaktürk, 2008. "Competitive Customization," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 377-390, October.
- Bernstein, Fernando & Song, Jing-Sheng & Zheng, Xiaona, 2008. ""Bricks-and-mortar" vs. "clicks-and-mortar": An equilibrium analysis," European Journal of Operational Research, Elsevier, vol. 187(3), pages 671-690, June.
- Taylor Randall & Karl Ulrich, 2001. "Product Variety, Supply Chain Structure, and Firm Performance: Analysis of the U.S. Bicycle Industry," Management Science, INFORMS, vol. 47(12), pages 1588-1604, December.
- Wang, Xiaolong & Liu, Liwen, 2007. "Coordination in a retailer-led supply chain through option contract," International Journal of Production Economics, Elsevier, vol. 110(1-2), pages 115-127, October.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:233:y:2014:i:1:p:114-124. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.