To Have Your Cake and Eat It? A Two-Period Model for Retailers’ Mixed Bundling or Reserved Product Pricing Strategies in Response to Supplier Encroachment

Abstract

In practice, many brand products retailers have adopted mixed bundling (MB) and reserved product pricing (RPP) in response to external competition, such as supplier's encroachment. There is scanty literature which addresses such flexibility among retailers and its impact on a dual-channel supply chain. To fill this void, we considered a two-period dual-channel model in which one of the two manufacturers sells a product through a direct channel; and through an independent retailer who can bundle two manufacturers' products together (Model M) and reduce their reservation prices (Model R). Our central result demonstrates that, although both MB and RPP strategies can indeed improve retailer's profitability, MB strategy creates strategic issues that are significantly different from that of RPP strategy. More specifically, relative to MB strategy, the retailer's RPP strategy is always detrimental to the manufacturer. Finally, to avoid the retailer's strategic choice for RPP, we designed a revenue sharing contract which can achieve perfect coordination of the supply chain ecosystem.

Keywords

• Supplier encroachment
• distribution channels
• mixed bundling
• reserved product pricing