Research on pricing strategy of manufacturer's dual-channel supply chain considering power structure and free-riding behaviour
by Weihua Liu; Wenfei Wu; Xiaoyu Yan; Xinyun Liu
International Journal of Modelling in Operations Management (IJMOM), Vol. 8, No. 4, 2022

Abstract: This paper systematically studies how the free-riding effect affects the supply chain performance under different power structures. We consider a two-tier supply chain composed of manufacturers and retailers. The supply chain has three structural forms: 1) manufacturer-led; 2) retailer-led; 3) centralised decision-making. By analysing the impact of the free-riding effect on the demand and profit of the dual-channel supply chain under different power structures, this study has obtained many important findings: First, the free-riding effect reduces the price and demand of retail channels and damages the profits of retailers. Increased the price and demand of direct sales channels and increased the profits of manufacturers. Secondly, we find that under decentralised decision-making, the overall profit of the supply chain may be reduced due to the free-riding effect, which will not only cause the retailer's profit to be infringed, but also the overall performance of the supply chain will not be optimal. Therefore, this paper proposes a service incentive contract, which makes the overall profit of the supply chain increase with the increase of the free-riding effect coefficient regardless of whether the manufacturer is the leader or the retailer is the leader.

Online publication date: Wed, 03-May-2023

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