Game Analysis in a Dual Channels System with Different Power Structures and Service Provision

This paper studies a dual-channel supply chain in which a manufacturer sells products to a retailer as well as to customers who are sensitive to both channel price and the retail service. Three game models (Manufacturer Stackelberg, Retailer Stackelberg and Vertical Nash) are built according to members’ different bargaining power in a dual channels system. The authors show that customers can receive lower channel price and higher retail service level when channel members have equal bargaining power, however, when the retailer occupies the market leadership, consumers always receive the least welfare because of the higher channel price and lower retail service. Interestingly, the retailer can take advantage of market leadership to make more profits, while the manufacturer is more willing to give up its power and act as a Stackelberg follower. Furthermore, Manufacturer Stackelberg and Vertical Nash is a strictly dominated strategy for the retailer and the manufacturer respectively.