Price decisions of freebie promotion with retailer information sharing

Abstract

This study investigates two-echelon pricing game models in which a manufacturer provides freebies during a promotional period and a retailer considers whether to share private demand information with the manufacturer. In particular, the manufacturer produces products (e.g., high-end cosmetics) and sells them wholesale to the retailer during the regular selling period. During the promotional period, the manufacturer offers freebies as a means of gaining more profits. First, we investigate four pricing game models by considering the manufacturer’s and retailer’s different power structures under the condition that the manufacturer provides freebies. Then, numerical examples are used to comparatively analyze the equilibria in the different models. The results offer valuable managerial insights by performing a sensitivity analysis of three parameters, which are the relative length of the promotional period and a sensitivity coefficient and cost coefficient of the freebies.