Pricing, warranty, and shelf space decisions for the supply chain with non-symmetric market and warranty-period dependent demand

This article presents a pricing, warranty, and shelf-space-size decision problem associated with a two-echelon supply chain composed of one retailer and two competing manufacturers. The products (belonging to two distinct manufacturers) come through a non-symmetric market. Demand for them is price sensitive and depends on the warranty period. As the sole leader, the retailer specifies the size of the available shelf space and the retail price for each product. At the same time, the manufacturers determine wholesale prices and warranty periods for their respective products. Mathematical models are developed to derive optimal solutions. Moreover, a sensitivity analysis for the models is performed to analyze how differences in market potential, production cost, warranty service cost, warranty-competition factors, and cross-price sensitivity parameters of products influence optimal solutions. Experimental results show that manufacturers can offset increased warranty service costs by decreasing the warranty competition factor. They can also adopt mixed strategies to reach a pre-specified target profit by considering their capability to either drop the warranty service cost or increase the warranty-competition factor. In addition, the retailer can modify the impact of reduced market potential or increased production cost (the warranty service cost) by using shelf-space cost management strategies.