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Product Recalls and Channel Pricing

In: Games in Management Science

Author

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  • Olivier Rubel

    (University of California)

Abstract

We propose a stochastic differential game between a manufacturer and a retailer to investigate how the risk of facing a product recall impacts pricing strategies in marketing channels. By doing so, we analyze whether vendor agreements between manufacturers and retailers, which are signed before any unit is sold, could distort channel profits by aggravating double marginalization. We characterize the equilibrium pricing strategies in closed form for both linear and quadratic costs of recall. We find that the manufacturer and the retailer respond differently to certain clauses of the vendor agreement, but that in equilibrium, such agreements do not distort channel profit, even when costs of recall are quadratic.

Suggested Citation

  • Olivier Rubel, 2020. "Product Recalls and Channel Pricing," International Series in Operations Research & Management Science, in: Pierre-Olivier Pineau & Simon Sigué & Sihem Taboubi (ed.), Games in Management Science, pages 75-85, Springer.
    • Handle: RePEc:spr:isochp:978-3-030-19107-8_5
    DOI: 10.1007/978-3-030-19107-8_5
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    Cited by:

    1. Jafarzadeh Ghazi, Amirhossein & Karray, Salma & Azad, Nader, 2023. "Price and quality competition while envisioning a quality-related product recall," European Journal of Operational Research, Elsevier, vol. 311(2), pages 486-501.
    2. Lu, Lijue & Navas, Jorge, 2021. "Advertising and quality improving strategies in a supply chain when facing potential crises," European Journal of Operational Research, Elsevier, vol. 288(3), pages 839-851.
    3. Jinhui Han & Suresh P. Sethi & Chi Chung Siu & Sheung Chi Phillip Yam, 2023. "Co‐op advertising in randomly fluctuating markets," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1617-1635, June.

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