Competition under manufacturer service and retail price

Abstract

This research studies a case where there are two manufacturers producing competing products and selling them through a common retailer. The consumer demand depends on two factors: (1) retail price, and (2) service level provided by the manufacturer. Game-theoretic framework is applied to obtained the equilibrium solutions for every entities. This article studies and compares results from three possible supply chain scenarios, (1) Manufacturer Stackelberg, (2) Retailer Stackelberg, and (3) Vertical Nash. Our research concludes that consumers receive more service when every channel members possess equal bargaining power (e.g., Vertical Nash). An interesting but less intuitive result shows that as market base of one product increases, the competitor also benefits but at a less amount than the manufacturer of the first product. Furthermore, when one manufacturer has some economic advantage in providing service, the retailer will act to separate market segment by selling the product with low service at a low price and selling the product with high service at a high price.

Service Competition and Product Quality in the U.S. Automobile Industry

“…In traditional service industries, theoretical models have examined competition when consumer demand depends on price and service levels (So 2000, Cachon and Harker 2002, Allon and Federgruen 2007, Bernstein and Federgruen 2007, and in empirical OM research several studies have tested some of these and related theories in, e.g., the fast food industry (Allon et al 2011) and the banking industry (Buell et al 2014). In manufacturing industries, in contrast, service competition has been the subject of theoretical models in OM, e.g., service competition between a manufacturer and a retailer (Cohen and Whang 1997), between retailers that interact strategically with a manufacturer (Tsay and Agrawal 2000), and between manufacturers (Lu et al 2011). The empirical evidence in the case of manufacturing industries, however, is scarce, and indeed we are not aware of any OM papers that analyze the impact of service competition on consumer demand in manufacturing industries empirically.…”

Simulation on the Complementary Product Strategy Based on the Cournot-Bertrand Mixed Game Model

“…Some enterprises have achieved the purpose of expanding demand and increasing profit through service extension strategy [1,2]. Under the lean production mode, if enterprises want to achieve profit growth without increasing investment, they have to change the production mode and fully integrate all resources.…”

Supply chain coordination via a two-part tariff contract with price and sales effort dependent demand

“…They have to emphasize the importance of non-price factors, such as service, quality or sales effort, which have become more important in affecting consumers' purchase decisions (Lu et al, 2011;Tsay & Agrawal, 2000;Boyaci & Gallego, 2004). The retailers may provide various sales efforts, such as pre-sale and after-sale service, product advertising, responsive product repair, in order to increase the attractiveness of the products.…”

“…Prior studies have examined price and service decisions under channel competition (Tsay & Agrawal, 2000;Chen et al, 2008;Bernstein & Federgruen, 2004;Dan et al, 2012), optimal coordination design and coordination (Bernstein & Federgruen, 2007;Mukhopadhyay et al, 2009;Ma et al, 2013a;Krishnan et al, 2004;He et al, 2009) and effects of the channel power structures (Lu et al, 2011;Tang et al, 2012;Gurnani et al, 2007;Karray, 2013). Perry and Porter (1990) investigated resale price maintenance by a monopoly manufacturer who sells its product through monopolistically competitive retailers when the retailers provide service.…”