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Joint pricing-servicing decision and channel strategies in the supply chain

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Abstract

This paper investigates the equilibrium behavior of a two-echelon supply chain in four channel strategies: (i) vertical integration, (ii) vertical Nash (iii) manufacturer’s Stackelberg and (vi) retailer’s Stackelberg. We examine the price and service level decision for each of the above four channel strategies in two cases: (i) Simultaneous service-level decision: Here, the manufacturer and retailer simultaneously choose a service level. (ii) Sequentially service-level decision: Here, the manufacturer and retailer sequentially choose a service level. We model the demand as a deterministic linear function of retailer’s price and both manufacturer’s and retailer’s service levels. We discuss the optimal configuration from each individual’s perspective for each of the above channel strategies. We show that vertical integration dominates other strategies and leads to the highest service level but lowest retail price among various channel coordination policies considered here. We yield several conclusions about the provision of service level by each supply chain individual to coordinate the channel.

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Authors and Affiliations

  1. Reykjavik University, Menntavegur 1, 101, Reykjavík, Iceland

    Desheng Wu

  2. Risklab University of Toronto, Toronto, Canada

    Desheng Wu

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  1. Desheng Wu
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Correspondence to Desheng Wu.

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Wu, D. Joint pricing-servicing decision and channel strategies in the supply chain. Cent Eur J Oper Res 19, 99–137 (2011). https://doi.org/10.1007/s10100-009-0133-z

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  • DOI: https://doi.org/10.1007/s10100-009-0133-z

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