Pricing and quality competition in a brand-differentiated supply chain

We develop game-theoretic models to study a supply chain in which two manufacturers supply a product in quality-differentiated brands to a common retailer. The supply chain involves both vertical competition between the retailer and manufacturers, and horizontal competition between the two manufacturers. We examine the two manufacturers' pricing timing choices, either early or late, in both the manufacturers Stackelberg and retailer Stackelberg supply chains. The manufacturers are in horizontal competition in an endogenous timing game, with quality being exogenous or endogenous. The impact of the manufacturers' timing of pricing on the profits of the retailer, manufacturers, and supply chain are discussed. We find that when quality is exogenous, in the manufacturers Stackelberg supply chain, either sequential pricing game (either the high-quality manufacturer or low-quality manufacturer moves early) can be the equilibrium. The simultaneous game is the dominant equilibrium in a retailer Stackelberg supply chain, and it results in intensified price competition between the two brands. When quality is endogenous, the simultaneous game is always the dominant equilibrium for both manufacturers Stackelberg and retailer Stackelberg supply chains, and leads to a win-win situation for the retailer and the manufacturers, and the best performance for the entire supply chain. In the simultaneous game with endogenous quality, both the price and quality competitions between the two brands are softened as compared to the case in which the low-quality manufacturer moves first, and intensified as compared to the case in which the high-quality manufacturer moves first. The implications of, and new insights on, the two manufacturers’ choices of pricing timing are also discussed.