Distribution Channel Structure for Competing Supply Chains with Price and Lead-Time Sensitive Demand

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Working Paper

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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.


channel structure, pricing, lead-time quotation, competition


Business Administration, Management, and Operations