Price competition between manufacturers selling to a common retailer under stock-out-based substitution


Kılıç B. D., KARAER Ö., BAKAL İ. S.

Computers and Industrial Engineering, vol.174, 2022 (SCI-Expanded) identifier identifier

  • Publication Type: Article / Article
  • Volume: 174
  • Publication Date: 2022
  • Doi Number: 10.1016/j.cie.2022.108764
  • Journal Name: Computers and Industrial Engineering
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus, ABI/INFORM, Aerospace Database, Applied Science & Technology Source, Business Source Elite, Business Source Premier, Communication Abstracts, Computer & Applied Sciences, INSPEC, Metadex, DIALNET, Civil Engineering Abstracts
  • Keywords: Supply chain management, Manufacturer competition, Substitution, Spillover effect, Pricing, 2-ECHELON SUPPLY CHAIN, INVENTORY MANAGEMENT, PRODUCT SUBSTITUTION, CHANNEL DISTRIBUTION, DECISIONS, POLICIES, DUOPOLY, COORDINATION, ASSORTMENT, LEADERSHIP
  • Middle East Technical University Affiliated: Yes

Abstract

© 2022 Elsevier LtdWe consider two partially substitutable products sold through a two-echelon supply chain, consisting of two manufacturers and one retailer. In case of a stock-out in one of the products, that product's demand can spill over to the competing product. We analyze the equilibrium pricing decisions of the manufacturers and ordering decision of the retailer in a three stage dynamic game for a single period. We investigate the effect of spillover rates on equilibrium decisions. We also evaluate the impact of spillovers being ignored by one of the manufacturers or all parties in the chain. We find that the retailer's order decision depends on the relative profitability of the products. As spillover rates increase, price competition between the manufacturers intensifies, and hence the double marginalization effect in the chain is mitigated.