Distribution Channel Structure for Competing Supply Chains with Price and Lead-Time Sensitive Demand
Publication Type
Working Paper
Publication Date
2013
Abstract
This paper studies distribution channel structure strategies (to centralize or decentralize) for two competing supply chains that sell substitutable products with price and lead-time sensitive demand. We find that centralization (decentralization) associates with itself a price (lead-time) advantage and a lead-time (price) disadvantage. As a result, price substitution and lead-time substitution have different impact on the equilibrium channel structure. Specifically, price substitution favors decentralization whereas lead-time substitution tends to result in centralization. Our results show that the equilibrium channel structure may critically depend on the game type (Bertrand vs. Cournot) and the pro t criterion (manufacturer pro t criterion vs. channel pro t criterion). In the Cournot model, centralization for both chains (CC) is always the only Nash equilibrium. In the Bertrand model, CC is still the only Nash equilibrium for the manufacturer pro t criterion. On the channel pro t criterion, however, the equilibrium channel structure changes with the relative intensity of price and lead-time substitution.
Keywords
channel structure, pricing, lead-time quotation, competition
Discipline
Business Administration, Management, and Operations
Citation
WU, Zhengping; Chen, G. Lucy; and Ou, Jihong.
Distribution Channel Structure for Competing Supply Chains with Price and Lead-Time Sensitive Demand. (2013).
Available at: https://ink.library.smu.edu.sg/lkcsb_research_smu/86