Game Theoretical Perspectives on Pricing Decisions in Asymmetric Competing Supply Chains

This paper investigates a dual exclusive channel model in which each manufacturer distributes its goods through a single exclusive retailer, but two goods are substitute. The decision rule between two channels is Nash game in Case 1, while it is Stackelberg game in Case 2. From manufacturer Stackelberg (MS), retailer Stackelberg (RS), and Nash game (VN) theoretic perspectives, nine game models are developed to examine the effect of product substitutability and relative channel status on pricing decisions at both horizontal competition and vertical competition levels. The analysis suggests that the type of price leadership scenarios, the level of product substitutability, and the relative channel status play a significant role in decision making. For instance, in case 1, the symmetric leadership (two manufacturers or two retailers are leaders) is always the dominant strategy and equilibrium for either two manufacturers or two retailers regardless of product substitutability and relative channel status. Nevertheless, the asymmetric leadership may lead channel members to encounter a prisoner’s dilemma if the relative channel status is small. By contrast, in Case 2, the symmetric leadership is not the unique dominant strategy for either two manufacturers or two retailers. In contrast to many earlier results, we also show that whether the first-mover and the late-mover advantages exist, depending on the level of related channel status.