Pricing and Coordination in a Dual-Channel Supply Chain With Product Variety Under the Countervailing Power of the Retailer

Abstract

To investigate pricing strategy and coordination mechanisms of the dual-channel supply chain with a retailer that has countervailing power to the manufacturer, we consider the effect of product variety in developing decentralized and centralized dual-channel supply chain game models. By solving these modes and comparing the results, we find the following: (i) The retailer’s offline retail price is greater than the online retail price of the manufacturer when the retailer’s market share is greater than the online market shares of the manufacturer under the centralized model. (ii) Online and offline product demand in a centralized supply chain increases with product variety. (iii) The relationship between offline retail price, wholesale price, and product variety depend on the threshold of the offline channel’s market size. The wholesale price decreases with the countervailing power of the retailer. (iv) The relationship between offline retail price and demand in centralized and decentralized supply chains is related to the product variety threshold. Furthermore, manufacturer and total supply chain profit first rises and then declines, whereas the retailer’s profit steadily increases with the degree of product variety. Two-part tariff pricing contracts can coordinate a decentralized model to obtain the same profit as that in a centralized model.

Keywords

• Dual-channel supply chain
• product variety
• countervailing power of the retailer
• two-part tariff pricing contract