Purchasing choices and channel structure strategies for a two-echelon system with risk-averse players
Journal
International Journal of Production Economics
Journal Volume
120
Journal Issue
1
Pages
54-65
Date Issued
2009
Author(s)
Xiao T.
Abstract
We develop a dynamic game theoretic model of a two-echelon system consisting of two manufacturers and two retailers, where all players are risk averse. Each manufacturer has two pure channel strategies, namely the integrated channel (I) and the retailing channel (R). We mainly focus on how the channel structure strategies and wholesale prices of the manufacturers depend on the risk sensitivity, the pricing power and the purchasing option of the retailer. We derive the optimal decisions for each player and find that: a higher substitutability of the two products implies a stronger manufacturer's motivation to use retailing channel to act against the retailing channel. We further identify the effects of the retailer's risk sensitivity on the wholesale prices which depend on the channel structure. If the total net price cap for the leader retailer is sufficiently large relative to the follower retailer, then the purchasing option of the retailer affects the supply chain's channel structure significantly. ? 2008 Elsevier B.V. All rights reserved.
Subjects
Channel structure; Game theory; Purchasing choice; Supply chain management
Other Subjects
Channel structure; Channel structures; Dynamic game; Integrated channels; Optimal decisions; Price caps; Risk averse; Risk sensitivity; Two-product; Whole sale prices; Costs; Game theory; Manufacture; Sales; Supply chains; Supply chain management
Type
journal article