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Pricing and alliance selection for a dominant retailer with an upstream entry

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  • Zhou, Yong-Wu
  • Cao, Zong-Hong
  • Zhong, Yuanguang

Abstract

We consider the problem of pricing and alliance selection that a dominant retailer in a two-echelon supply chain decides when facing a potential upstream entry. The two-echelon supply chain consists of a dominant retailer, an incumbent supplier and an “incursive” vendor, where both the incumbent supplier and “incursive” vendor sell substitutable products to the common market through the dominant retailer. Our objective is to discuss whether the dominant retailer should sell the “incursive” vendor's products and, if so, how the dominant retailer strategically selects the alliance structure to maximize his/her own profit. We also present how all the members make their pricing decisions and analyze the impact of competitive intensity between two products on their pricing strategies after the entry of the vendor in possible alliance settings. Our results show that: (1) the introduction of the upstream vendor always benefits the retailer, and more interestingly, benefits the incumbent suppler in many cases, too; (2) in this paper, we define the competitive ability as the price dominance of one player over another when both are competing for the same customer market, if the price competition between the incumbent supplier and the “incursive” vendor is relatively fierce, the dominant retailer should ally with the one who has a relatively strong competitive ability rather than the other who has a relatively weak competitive ability; otherwise, he/she should ally with both upstream members. Finally, using numerical examples, we analyze the impact of different parameters and provide some management insights.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:ejores:v:243:y:2015:i:1:p:211-223
    DOI: 10.1016/j.ejor.2014.11.004
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    6. Yunlong Yu & Tiaojun Xiao & Zhangwei Feng, 2020. "Price and cold-chain service decisions versus integration in a fresh agri-product supply chain with competing retailers," Annals of Operations Research, Springer, vol. 287(1), pages 465-493, April.
    7. Nie, Jiajia & Zhong, Ling & Li, Gendao & Cao, Kuo, 2022. "Piracy as an entry deterrence strategy in software market," European Journal of Operational Research, Elsevier, vol. 298(2), pages 560-572.
    8. Liu, Guanmei & Shao, Xiaofeng & Lang, Xiao, 2020. "On the interaction of technology upgrade and buyer entry in a supply chain," International Journal of Production Economics, Elsevier, vol. 221(C).
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    10. Pegah Bahrani & Alireza Arshadi Khamseh, 2020. "Competitive Environment Between Green and Non-green Products Considering Disruption and Alliance Strategy," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 21(2), pages 135-161, June.
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