Price competitions of substitutable products in a retailer-led dual-channel supply chain

Abstract

This article considers a dual-channel supply chain with two manufacturers and one dominant retailer. Specifically, the two manufacturers produce two substitutable products and sell them to the dominant retailer, one of the two manufacturers is a traditional manufacturer who produces a product and only directly sells it to the dominant retailer, while the other manufacturer has established an Internet channel, so that he can sell his product to the retailer and can sell his product to consumers directly through the Internet channel. By considering the effect of channel members' market powers, this paper examines the channel members' price competition, Internet vs. traditional channels competition and the benefit for one of the two manufacturers when he opens an Internet channel. Two decision models are established and the corresponding closed-form expressions for model solutions are obtained. Then, sensitivity analysis of model solution is conducted for some key parameters, and the maximal profits and optimal prices obtained in different decision models are compared by numerical analysis. Based on these results, some interesting and valuable economic and managerial insights are obtained.