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Price and quality-based competition and channel structure with consumer loyalty

Author

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  • Wang, Sujuan
  • Hu, Qiying
  • Liu, Weiqi

Abstract

Inspired by practices of the Chinese household appliance industry, we explore interaction of channel structure with price-and quality-based competition between two manufacturers who are asymmetric on customer loyalty. Each manufacturer sells its product through either a decentralized channel or an integrated channel to customers and faces demand depending on quality, retail price, and customer loyalty. We divide the market into two types: The price-sensitive market and quality-sensitive market, and find that the equilibrium depends on the market type. Different from the literature, in a quality-sensitive market with higher market innovation desire, the pure integration structure is likely to be in equilibrium, and furthermore, the manufacturer with higher loyalty can earn higher profit; Otherwise, the pure decentralization structure is in equilibrium. So, a manufacturer benefits the most from consumers’ higher quality valuation, strong loyalty, and channel centralization.

Suggested Citation

  • Wang, Sujuan & Hu, Qiying & Liu, Weiqi, 2017. "Price and quality-based competition and channel structure with consumer loyalty," European Journal of Operational Research, Elsevier, vol. 262(2), pages 563-574.
    • Handle: RePEc:eee:ejores:v:262:y:2017:i:2:p:563-574
    DOI: 10.1016/j.ejor.2017.03.052
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