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Manufacturer's pricing strategy in a two-level supply chain with competing retailers and advertising cost dependent demand

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  • Giri, B.C.
  • Sharma, S.

Abstract

The paper studies a two-echelon supply chain comprising one manufacturer and two competing retailers with advertising cost dependent demand. The manufacturer acts as the Stackelberg leader who specifies wholesale price for each retailer. The two retailers compete with each other in advertising and they have different sales costs. The manufacturer uses one of the following two pricing strategies: (i) setting the same wholesale price for both the retailers irrespective of the difference in their sales costs; (ii) setting different wholesale prices for the retailers depending on their sales costs. Two models are developed. In the first model, the manufacturer shares a fraction of each retailer's advertising cost while in the second model, the manufacturer does not share any retailer's advertising expenses. In both the models, we derive the retailers' and manufacturer's optimal strategies. A numerical example is given to illustrate the theoretical results developed in each model. Computational results show that it is always beneficial for the manufacturer to adopt different wholesale pricing strategy for the retailers.

Suggested Citation

  • Giri, B.C. & Sharma, S., 2014. "Manufacturer's pricing strategy in a two-level supply chain with competing retailers and advertising cost dependent demand," Economic Modelling, Elsevier, vol. 38(C), pages 102-111.
    • Handle: RePEc:eee:ecmode:v:38:y:2014:i:c:p:102-111
    DOI: 10.1016/j.econmod.2013.11.005
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    6. Taiguang Gao & Kui Wang & Yali Mei & Shan He & Yanfang Wang, 2022. "Supply Chain Pricing Models Considering Risk Attitudes under Free-Riding Behavior," Mathematics, MDPI, vol. 10(10), pages 1-22, May.
    7. Anil K. Agrawal & Amit Ambar Gupta & Manu K. Vora, 2021. "Optimal pricing and lot-sizing policies under promotional expense for some Veblen products," OPSEARCH, Springer;Operational Research Society of India, vol. 58(1), pages 83-108, March.
    8. Yong Liu & Bing-ting Quan & Jiao Li & Jeffrey Yi-Lin Forrest, 2018. "A Supply Chain Coordination Mechanism with Cost Sharing of Corporate Social Responsibility," Sustainability, MDPI, vol. 10(4), pages 1-25, April.
    9. Xuyue Li, 2018. "Competing Retailers’ Environmental Investment: An Analysis under Different Power Structures," Energies, MDPI, vol. 11(10), pages 1-18, October.
    10. Raghu Nandan Giri & Shyamal Kumar Mondal & Manoranjan Maiti, 2021. "Analysis of strategies for substitutable and complementary products in a two-levels fuzzy supply chain system," Operational Research, Springer, vol. 21(1), pages 485-524, March.
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