Competition Under Retail Price and Manufacturer Service

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.