Financial and Marketing Decisions for Substitutable Products in a Two-Echelon Supply Chain: Online and Traditional Channels

The pricing strategy for both retailers and producers in a two-echelons supply chain is considered as a powerful tool to maximize the firms’ profit. Our research investigates the pricing problem for a supply chain that includes two manufacturers and a single retailer where demands rely on selling prices, service value, and quality levels of items. Traditional and online distribution channels are considered for manufacturers to sell the substitutable items in the competitive market. One centralized pricing model (CD model) and two decentralized pricing models including Nash equilibrium model (NG model) and Manufacturers cooperation game (MSC model) to formulate the problem are developed. Based on the formulation, both the manufacturers and independent retailer decide the optimum wholesale, retail, and online selling prices, and products’ quality levels, to achieve the maximum profits. Finally, the behaviors of the firms under various decision strategies and different information are compared. The sensitivity analysis of key parameters for proposed models under the same information due to the complication of the analytical results is investigated to illustrate their impacts on the optimal decisions.