Impact of uniform price regulation in a supply chain in the presence of retailer’s merger

Uniform Price Regulation (UPR), a mechanism that mandates sellers to set uniform prices for heterogeneous buyers, is widely recognized for enforcing restrictions on sellers, protecting buyers and enhancing social welfare. Nevertheless, within a supply chain context where retailers may pursue horizontal mergers, the impact of UPR imposed on suppliers remains ambiguous to supply chain participants and society. This paper delves into the implementation of UPR within a supply chain where a supplier distributes products through heterogeneous retailers with varying market power. In addition to making operational decisions, these retailers can decide whether to engage in a merger. To investigate the impact of UPR under different merger scenarios, we examine both the monopolistic merger scenario (two retailers) and the non-monopolistic merger scenario (three retailers). Our results demonstrate that, UPR consistently reduces the retailers’ merger incentive in the monopolistic merger scenario. Notably, implementing UPR could create an all-win result, benefiting all supply chain participants including the regulated supplier. In the non-monopolistic merger scenario, UPR reduces the merger incentive when the merger-initiating retailer’s market power is significantly higher or lower than that of the target retailer, whereas it enhances the incentive when the two retailers’ market powers are comparable. Surprisingly, UPR can still yield an all-win result for all supply chain participants. For the whole society, counterintuitively, implementing UPR may result in a reduction of social welfare under certain circumstances. We also extend the model to diverse scenarios to validate and expand the key conclusions. Managerially, our results highlight the core advantage of UPR in enhancing performance across all supply chain participants while emphasizing the importance of incorporating downstream merger strategies into UPR policy design.