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Pareto Improvement Strategy for Service-Based Free-Riding in a Dual-Channel Supply Chain

Author

Listed:
  • Bin Dan

    (School of Economics and Business Administration, Chongqing Key Laboratory of Logistics at Chongqing University, Chongqing University, Chongqing 400044, P. R. China)

  • Can Liu

    (School of Economics and Business Administration, Chongqing University, Chongqing 400044, P. R. China)

  • Guangye Xu

    (School of Management, Southwest University of Political Science and Law, Chongqing 401120, P. R. China)

  • Xumei Zhang

    (School of Economics and Business Administration, Chongqing University, Chongqing 400044, P. R. China)

Abstract

With the rapid development of the Internet, many manufacturers nowadays are increasingly adopting a dual-channel strategy to sell their products. In this paper, we present an analytical framework in a single-channel supply chain and a dual-channel supply chain, respectively. We compare the optimal service levels under different scenarios to investigate the impacts of bidirectional free-riding and service competition on members' decisions. In order to realize system optimization, we propose contracts to coordinate the decentralized supply chain under different cases. We find that when a new channel is added, the retailer will always increase his service level to compete with the manufacturer, while the manufacturer needs to take the relationship with the retailer into consideration and decides whether to increase or decrease her service level. We also find that the contracts for different cases can make the optimal solutions the same as those under the centralized scenario by adjusting service levels based on the relative size of competition effect and spillover effect. Finally, we conduct numerical examples to verify the existence of Pareto improvement intervals and derive some managerial insights.

Suggested Citation

  • Bin Dan & Can Liu & Guangye Xu & Xumei Zhang, 2014. "Pareto Improvement Strategy for Service-Based Free-Riding in a Dual-Channel Supply Chain," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 31(06), pages 1-27.
    • Handle: RePEc:wsi:apjorx:v:31:y:2014:i:06:n:s021759591450050x
    DOI: 10.1142/S021759591450050X
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Jason R. W. Merrick, 2008. "Getting the Right Mix of Experts," Decision Analysis, INFORMS, vol. 5(1), pages 43-52, March.
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    Cited by:

    1. Xu, Qi & Fu, Guanghua & Fan, Dandan, 2020. "Service sharing, profit mode and coordination mechanism in the Online-to-Offline retail market," Economic Modelling, Elsevier, vol. 91(C), pages 659-669.
    2. Zhou, Rui & Liao, Yi & Shen, Wenjing & Yang, Shilei, 2020. "Channel selection and fulfillment service contracts in the presence of asymmetric service information," International Journal of Production Economics, Elsevier, vol. 222(C).
    3. Shiyang Li & Mengli Li & Nan Zhou, 2020. "Pricing and coordination in a dual-channel supply chain with a socially responsible manufacturer," PLOS ONE, Public Library of Science, vol. 15(7), pages 1-15, July.
    4. Pi, Zhenyang & Fang, Weiguo & Perera, Sandun C. & Zhang, Baofeng, 2022. "Enhancing the online buyer perception of consumer experience products in a dual-channel supply chain: A new role of free-riding," International Journal of Production Economics, Elsevier, vol. 253(C).
    5. Matsui, Kenji, 2017. "When should a manufacturer set its direct price and wholesale price in dual-channel supply chains?," European Journal of Operational Research, Elsevier, vol. 258(2), pages 501-511.
    6. Umangi Pathak & Ravi Kant & Ravi Shankar, 2020. "Effect of buyback price on channel’s decision parameters for manufacturer-led close loop dual supply chain," OPSEARCH, Springer;Operational Research Society of India, vol. 57(2), pages 438-461, June.
    7. Xue, Musen & Zhang, Jianxiong & Zhu, Guowei, 2020. "Quantity decision timing with spillover effect and asymmetric demand information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 142(C).
    8. Zongyu Mu & Yuangang Zheng & Hao Sun, 2021. "Cooperative Green Technology Innovation of an E-Commerce Sales Channel in a Two-Stage Supply Chain," Sustainability, MDPI, vol. 13(13), pages 1-28, July.
    9. Zhou, Yong-Wu & Guo, Jinsen & Zhou, Wenhui, 2018. "Pricing/service strategies for a dual-channel supply chain with free riding and service-cost sharing," International Journal of Production Economics, Elsevier, vol. 196(C), pages 198-210.

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