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Purchasing choices and channel structure strategies for a two-echelon system with risk-averse players

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  • Xiao, Tiaojun
  • Choi, Tsan-Ming

Abstract

We develop a dynamic game theoretic model of a two-echelon system consisting of two manufacturers and two retailers, where all players are risk averse. Each manufacturer has two pure channel strategies, namely the integrated channel (I) and the retailing channel (R). We mainly focus on how the channel structure strategies and wholesale prices of the manufacturers depend on the risk sensitivity, the pricing power and the purchasing option of the retailer. We derive the optimal decisions for each player and find that: a higher substitutability of the two products implies a stronger manufacturer's motivation to use retailing channel to act against the retailing channel. We further identify the effects of the retailer's risk sensitivity on the wholesale prices which depend on the channel structure. If the total net price cap for the leader retailer is sufficiently large relative to the follower retailer, then the purchasing option of the retailer affects the supply chain's channel structure significantly.

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  • Xiao, Tiaojun & Choi, Tsan-Ming, 2009. "Purchasing choices and channel structure strategies for a two-echelon system with risk-averse players," International Journal of Production Economics, Elsevier, vol. 120(1), pages 54-65, July.
    • Handle: RePEc:eee:proeco:v:120:y:2009:i:1:p:54-65
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    Cited by:

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    3. Sun, Xuting & Chung, Sai-Ho & Choi, Tsan-Ming & Sheu, Jiuh-Biing & Ma, Hoi Lam, 2020. "Combating lead-time uncertainty in global supply chain's shipment-assignment: Is it wise to be risk-averse?," Transportation Research Part B: Methodological, Elsevier, vol. 138(C), pages 406-434.
    4. Bian, Junsong & Guo, Xiaolei & Li, Kevin W., 2015. "Distribution channel strategies in a mixed market," International Journal of Production Economics, Elsevier, vol. 162(C), pages 13-24.
    5. Matsui, Kenji, 2018. "When and what wholesale and retail prices should be set in multi-channel supply chains?," European Journal of Operational Research, Elsevier, vol. 267(2), pages 540-554.
    6. Xujin Pu & Zhiping Song & Guanghua Han, 2018. "Competition among Supply Chains and Governmental Policy: Considering Consumers’ Low-Carbon Preference," IJERPH, MDPI, vol. 15(9), pages 1-21, September.
    7. Ghosh, Debabrata & Shah, Janat, 2012. "A comparative analysis of greening policies across supply chain structures," International Journal of Production Economics, Elsevier, vol. 135(2), pages 568-583.
    8. Yang, Shilei & Shi, Victor & Jackson, Jonathan E., 2015. "Manufacturers׳ channel structures when selling asymmetric competing products," International Journal of Production Economics, Elsevier, vol. 170(PB), pages 641-651.
    9. Zhou, Yu & Gao, Xiang & Luo, Suyuan & Xiong, Yu & Ye, Niangyue, 2022. "Anti-Counterfeiting in a retail Platform: A Game-Theoretic approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 165(C).
    10. Yao-Yu Wang & Jiasen Sun & Jian-Cai Wang, 2016. "Equilibrium markup pricing strategies for the dominant retailers under supply chain to chain competition," International Journal of Production Research, Taylor & Francis Journals, vol. 54(7), pages 2075-2092, April.
    11. Li, Yongjian & Xu, Lei & Li, Dahui, 2013. "Examining relationships between the return policy, product quality, and pricing strategy in online direct selling," International Journal of Production Economics, Elsevier, vol. 144(2), pages 451-460.
    12. Tsan-Ming Choi & Mingzheng Wang & Xiaohang Yue, 2016. "Emerging production optimization issues in supply chain systems," Annals of Operations Research, Springer, vol. 240(2), pages 381-393, May.
    13. Yeung, Wing-Kwan & Choi, Tsan-Ming & Cheng, T.C.E., 2011. "Supply chain scheduling and coordination with dual delivery modes and inventory storage cost," International Journal of Production Economics, Elsevier, vol. 132(2), pages 223-229, August.
    14. Xiao, Tiaojun & Choi, Tsan-Ming & Cheng, T.C.E., 2016. "Delivery leadtime and channel structure decisions for make-to-order duopoly under different game scenarios," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 87(C), pages 113-129.
    15. Rufeng Wang & Xiongwei Zhou & Bo Li, 2022. "Pricing strategy of dual-channel supply chain with a risk-averse retailer considering consumers’ channel preferences," Annals of Operations Research, Springer, vol. 309(1), pages 305-324, February.
    16. Yang, Hui & Sun, Fei & Chen, Jing & Chen, Bintong, 2019. "Financing decisions in a supply chain with a capital-constrained manufacturer as new entrant," International Journal of Production Economics, Elsevier, vol. 216(C), pages 321-332.
    17. 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.
    18. Niu, Baozhuang & Xu, Haotao & Chen, Lei, 2022. "Creating all-win by blockchain in a remanufacturing supply chain with consumer risk-aversion and quality untrust," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 163(C).
    19. Wu, Jun & Wang, Shouyang & Chao, Xiuli & Ng, C.T. & Cheng, T.C.E., 2010. "Impact of risk aversion on optimal decisions in supply contracts," International Journal of Production Economics, Elsevier, vol. 128(2), pages 569-576, December.
    20. Matsui, Kenji, 2010. "Returns policy, new model introduction, and consumer welfare," International Journal of Production Economics, Elsevier, vol. 124(2), pages 299-309, April.

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