Resale Price Maintenance with Strategic Customers

Abstract

We consider a decentralized supply chain (DSC) under resale price maintenance (RPM) selling a limited‐lifetime product to forward‐looking customers with heterogeneous valuations. When customers do not know the inventory level, double marginalization under RPM leads to a higher profit and aggregate welfare than without RPM under a two‐part tariff contract (TT). Both RPM and TT profits are higher and aggregate welfare is lower than in a centralized supply chain (CSC). When customers know the inventory, RPM coincides with CSC. Thus, overestimation of customer awareness may lead to overcentralization of supply chains with profit loss comparable with the loss from strategic customers. The case of RPM with unknown inventory is extended to an arbitrary number of retailers with inventory‐independent and inventory‐dependent demand. In both cases, the manufacturer, by setting a higher wholesale price, mitigates the inventory‐increasing effect of competition and reaches the same profit as with a single retailer. The high viability and efficiency of RPM in using double marginalization as a strategic‐behavior‐mitigating tool may serve as another explanation of why manufacturers may prefer DSC with RPM to a vertically integrated firm.

Shopping with perceived benefits of sustainable consumption in online resale platforms

“…Measurements for perceived benefits were adapted from previous studies Bazhanov et al. (2019), Guercini et al.…”

Consumption Motivation of Limited Edition Product in Reselling Open Market

“…Consumption behaviors are related to the intention of maintaining the relationship between consumers and brands [60]. The past use experience of users affects their intention of continued use; it can be one of the most important factors for consumers to maintain their relationship with a certain brand and for enterprises to create long-term business achievements [61]. Continuous consumption attitudes are acts practiced after a product or service has been accepted [62].…”

“…In these backgrounds, the customer's consumption behavior of limited edition products can be related to economic value. This study used the economic variable and survey items included on the basis of the research of Guercini et al [49] and Bazhanov et al [61]. The parameter of "active consumption attitudes" is based on previous studies of Libai et al [59], Martin and Jin [63], and Vargo [72].…”

“…Bazhanov et al [61] Active Consumption Attitude I am willing to spend much time to buy limited edition products in reselling market. I am willing to bear a lot of cost to buy limited edition products in reselling market.…”

Competition Policy and Antitrust Law: Implications of Developments in Supply Chain Management

“…Building upon this research, latter research examined RPM as a promotional tool (Bernstein, Song & Zheng, 2009), the effect of power on the use of RPM (Liu, Fry & Raturi, 2009;Xue, Demirag & Niu, 2014), and RPM practices in the context of customer heterogeneity and uncertain preferences (Matsui, 2011). More recently, SCM researchers have examined RPM in decentralized supply chains (Bazhanov, Levin & Nediak, 2017) and the effects of RPM on supply chain performance (Kyparisis & Koulamas, 2018).…”