Model Development for Manufacturer Price and Retailer Service Competition in a Duopoly Common Retailer Channel

A model had been considered where there is price competition between two manufacturers and one retailer. Subsequently, this model was extended by including price competition between two manufacturers and two retailers. Moreover, price and service competition had been studied 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. In this study, a channel structure in which there are duopoly manufacturers and duopoly common retailers in competition between channel members under wholesale price and retail’s margin and service provided by retailer was studied. Customer demand depends on two factors: (1) price and (2) service level provided by the retailer. Both of these manufacturers produce competing products and sell their products to both common retailers. This study focuses on the role of service provided by the retailer, how the bargaining power can affect the decision variables and channel member’s profit, when there is competition between the retailers service and margin and manufacturers price (decision variables). To overcome this problem a solution on the effect of bargaining power to supply chain equilibrium was studied. The demand function model was developed by considering service by retailer in duopoly retailer channel structure. The effect of bargaining power on equilibrium solution when the manufacturer or the retailer is a leader, and the effect of increase production cost and market base and price and service competition index on the channel’s decision variables was determined. The game theory approach was used to derive equilibrium solutions for wholesale prices, retailer margins and service, and profits for each channel member. To study the effect of bargaining power in this supply chain equilibrium solution, Manufacturer Stackelberg, Retailer Stackelberg, and Vertical Nash were used. In this study, it was shown that customers receive the least benefit from service when the retailer is leader. They are better off when the manufacturer is leader. The effect of changes in price competition indexes (b p , θ p ), service competition indexes (bs , θ s ), production cost ( ), and market base ( ) on market sensitivity were analyzed. The result showed that when c of one manufacturer increases, the firm can sell its product at a higher price and with lower quantity but its competitor benefits. By increasing the market base of one of the manufacturers, the wholesale and retail price increase. When customer tends to choose a product with lower price, the manufacturer sells its product with lower wholesale price. Since, it was assumed that the cost of providing service increases by the power of 2, it is not economical to invest in service. Therefore, by increasing ci aij i θ sand bs the service level first increases and then decreases.

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