Joint Pricing and Contingent Free-Shipping Decisions in B2C Transactions

We consider an online retailer's joint pricing and contingent free-shipping (CFS) decisions in both monopoly and duopoly structures, which is an important marketing-operations interface problem. We begin by investigating the impacts of a retailer's decisions on consumers' purchase behaviors, and show that the CFS strategy is useful to acquire the consumers with large order sizes. Then, we compute the probability of repeated purchases, and construct an expected profit function for an online retailer in the monopolistic setting. We find that the fixed shipping fees may have the largest impact on the retailer's profit among all shipping-related parameters, and the retailer can benefit more from homogeneous markets than from heterogeneous ones. Next, we consider the competition between two retailers in the duopoly structure, and analytically show that, if two retailers have identical fixed and variable shipping fees, then their equilibrium decisions are equal. In order to numerically find a Nash equilibrium for two retailers, we develop a simulation approach using Arena and OptQuest. Our simulation-based examples suggest that, as a result of the competition, the two retailers should decrease their profit margins but increase their CFS cutoff levels if they have the same fixed and also the same variable shipping fees.     

The Effect of Delayed Incentives on Supply Chain Profits and Consumer Surplus

We examine the use of consumer cash mail‐in rebates offered by a manufacturer in a Stackelberg game where the manufacturer is the leader and the retailer is the follower. Our analysis indicates that rebates are profitable for manufacturers if consumers are inconsistent in the sense that their rebate valuation when they make purchase decisions is independent of their redemption probabilities when they make redemption decisions. If the manufacturer keeps the wholesale price unchanged, then the rebate increases the retailer's profit by a larger amount than the increase in the manufacturer's profit. If the manufacturer jointly optimizes the wholesale price and rebate, then the increase in the manufacturer's profit is twice the increase in the retailer's profit. The retailer responds to rebates by increasing the retail price, which increases the margin paid by consumers who do not redeem the rebate. On average, consumer surplus decreases when it is optimal for manufacturers to offer rebates. We suggest incentive schemes that make it worthwhile for retailers to limit the price increase. In these incentive schemes, the manufacturer imposes a negative relationship between the rebate value and the retail price. We show that such incentives increase supply chain profits.     

Replenishment Strategies for Micro‐Retailers in Developing Countries

When formal distribution channels are absent in developing countries, micro‐retailers travel a long distance to replenish their stocks directly from suppliers. This “informal” replenishment strategy is inefficient due to high imputed travel costs involved in the replenishment process. To improve efficiency, one “hybrid” replenishment strategy has emerged under which one of the micro‐retailers in a neighborhood, while continuing its own retail business, also operates as a wholesaler to serve other micro‐retailers in the neighborhood. A major obstacle for the transition from the informal strategy to the hybrid strategy is that the micro‐retailers are reluctant to source from a wholesaler who also competes with them in the retail market. Thus, it is not clear when the micro‐retailers adopt the hybrid strategy instead of the informal strategy. Meanwhile, the micro‐retailers may prefer the “formal” strategy: a traditional replenishment strategy under which one of the micro‐retailers relinquishes its retail business and operates purely as a wholesaler. We examine a situation when competing micro‐retailers contemplate with the three potential aforementioned replenishment strategies. Our equilibrium analysis of the two‐store model reveals that the dominant strategy is: (a) the hybrid strategy when the travel cost is high; (b) the formal strategy when the travel cost is medium; and (c) the informal strategy when the travel cost is low. This key insight is shown continue to hold when we extend the two‐store model to incorporate other issues including: quantity discounts from the supplier, variable operating costs, price competition, local monopolies, and different decision sequences. One additional finding is that the transition from the informal strategy to the hybrid strategy could benefit consumers if the micro‐retailers receive quantity discounts from the supplier. Furthermore, when there are more than two stores, we show that the formal strategy is never dominant. Moreover, when the number of stores increases, the hybrid strategy becomes more preferable to the informal strategy.     

Shipping Fees or Shipping Free? A Tale of Two Price Partitioning Strategies in Online Retailing

In this article, we study the price partitioning decisions of online retailers regarding shipping and handling (S&H) fees. Specifically, we analyze two partitioning formats used by retailers in this context. In the first scenario, retailers present customers with a price that is partitioned into a product price and a separate S&H surcharge (the PS strategy); in the second, customers are offered free shipping through a non‐partitioned format where the product price already includes the shipping cost (the ZS strategy). We first develop a stylized game‐theoretic model that captures the competitive dynamics between (and within) these two formats. Analysis of the model provides insights into how both firm and product level characteristics drive a retailer's strategic choice regarding which partitioning format to adopt and, hence, determines the equilibrium market structure in terms of proportion of ZS and PS retailers. Subsequently, we conduct empirical analyses, based on product and S&H prices data for two different product categories (digital cameras and printers) collected from online retailers, to validate all the results of our theoretical model. We establish that PS retailers charge lower product prices than ZS ones, but the total price (product + S&H) charged is higher for the first group. The S&H charge for PS retailers can be significant—it is, on average, 5.4% (printers) and 3.0% (digital cameras) for our two product categories. Furthermore, retailers which are popular and/or face risky cost environment are more likely to opt for the ZS strategy, while retailers whose portfolio mostly includes large or heavy products with high cost (S&H)‐to‐price ratios usually choose the PS strategy. Lastly, our empirical study also illustrates that the price adjustment behavior of retailers is affected by their shipping‐fee policies—for example, ZS retailers change their product prices almost 1.5 times more frequently than PS ones.     

Balancing Inventory and Stockout Risk in Retail Supply Chains Using Fast‐Ship

In this study, we consider a two‐retailer, one‐supplier supply chain in which retailers satisfy excess demand by offering to directly ship out‐of‐stock items on an expedited basis at no extra cost to customers. This practice is referred to as the fast‐ship option. We consider two scenarios along with the fast‐ship option. In the first scenario, retailers transship when out of stock, whereas in the second scenario, they do not. If they do not transship, some customers may perform the search on their own. In each scenario, the wholesale prices are either exogenous, or chosen endogenously by the supplier. For both cases, we determine the supplier's and the retailers’ optimal decisions. The key research question we ask and answer is the following: which of the two scenarios is preferred by either player when all decisions are made optimally? We show that when fewer customers are willing to search on their own and wholesale prices are exogenous, both the supplier and the retailers prefer to transship. In addition, the decision maker in a centralized chain will have the exact same preference as that of players in a decentralized setting when the retailers’ and the supplier's preferences coincide and wholesale prices are exogenous. This preference concordance does not hold if wholesale prices are endogenous.     

What Happens When Wal‐Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry

In the past few decades multistore retailers, especially those with 100 or more stores, have experienced substantial growth. At the same time, there is widely reported public outcry over the impact of these chain stores on other retailers and local communities. This paper develops an empirical model to assess the impact of chain stores on other discount retailers and to quantify the size of the scale economies within a chain. The model has two key features. First, it allows for flexible competition patterns among all players. Second, for chains, it incorporates the scale economies that arise from operating multiple stores in nearby regions. In doing so, the model relaxes the commonly used assumption that entry in different markets is independent. The lattice theory is exploited to solve this complicated entry game among chains and other discount retailers in a large number of markets. It is found that the negative impact of Kmart's presence on Wal‐Mart's profit was much stronger in 1988 than in 1997, while the opposite is true for the effect of Wal‐Mart's presence on Kmart's profit. Having a chain store in a market makes roughly 50% of the discount stores unprofitable. Wal‐Mart's expansion from the late 1980s to the late 1990s explains about 40–50% of the net change in the number of small discount stores and 30–40% for all other discount stores. Scale economies were important for Wal‐Mart, but less so for Kmart, and the magnitude did not grow proportionately with the chains' sizes.     

Strategic Motive for Introducing Internet Channels in a Supply Chain

Rapid advances of information technology in recent years have enabled both the manufacturers and the retailers to operate their own Internet channels. In this study, we investigate the interaction between the capabilities of introducing the Internet channels, the pricing strategies, and the channel structure. We classify consumers into two segments: grocery shoppers attach a higher utility from purchasing through the physical channel, whereas a priori Internet shoppers prefer purchasing online. We find that when the Internet shoppers are either highly profitable or fairly unimportant, the manufacturer prefers to facilitate the channel separation either through his own Internet channel or the retailer's. In the intermediate region, however, the manufacturer encroaches the grocery shoppers and steals the demand from the retailer's physical channel. With horizontal competition between retailers, a priori symmetric retailers may adopt different channel strategies as a stable market equilibrium. The manufacturer may willingly give up his Internet channel and leverage on the retailer competition. When the manufacturer sells through an online e‐tailer, Internet shoppers may be induced to purchase through the physical channel. This reverse encroachment strategy emerges because selling through the e‐tailer leads to a more severe double marginalization problem.     

A WTP‐Choice Model: Empirical Validation,Competitive and Centralized Pricing

Willingness To Pay (WTP) of customers plays an anchoring role in pricing. This study proposes a new choice model based on WTP, incorporating sequential decision making, where the products with positive utility of purchase are considered in the order of customer preference. We compare WTP‐choice model with the commonly used (multinomial) Logit model with respect to the underlying choice process, information requirement, and independence of irrelevant alternatives. Using WTP‐choice model, we find and compare equilibrium and centrally optimal prices and profits without considering inventory availability. In addition, we compare equilibrium prices and profits in two contexts: without considering inventory availability and under lost sales. One of the interesting results with WTP‐choice model is the “loose coupling” of retailers in competition; prices are not coupled but profits are. That is, each retailer should charge the monopoly price as the collection of these prices constitute an equilibrium but each retailer's profit depends on other retailers' prices. Loose coupling fails with dependence of WTPs or dependence of preference on prices. Also, we show that competition among retailers facing dependent WTPs can cause price cycles under some conditions. We consider real‐life data on sales of yogurt, ketchup, candy melt, and tuna, and check if a version of WTP‐choice model (with uniform, triangle, or shifted exponential WTP distribution), standard or mixed Logit model fits better and predicts the sales better. These empirical tests establish that WTP‐choice model compares well and should be considered as a legitimate alternative to Logit models for studying pricing for products with low price and high frequency of purchase.     

政府补贴下制造/再制造竞争机理研究

以政府“以旧换再”补贴政策为背景,建立了原始制造商、再制造商与零售商两阶段博弈模型.基于此博弈模型,考虑政府不采取补贴政策、政府补贴给再制造商及政府通过零售商补贴购买再制造产品消费者3种情况,对比分析了政府不同补贴策略对两种产品单位批发价格、零售价格、销售量、利润、消费者剩余及环境的影响.结果表明:当再制造产品的需求不受废旧产品回收量限制,政府补贴可以降低两种产品单位零售价格,增加再制造商和零售商的利润,提高消费者的剩余;当再制造产品的需求受到废旧产品回收量限制时,政府补贴可以增加两种产品的单位批发价格和两种产品制造商的利润,但是会降低零售商的销售利润.     

Price Incentives and Coordination in a Two‐Product Decentralized Supply Chain

We investigate pricing incentives for competing retailers who distribute two variants of a manufacturer's product in a decentralized supply chain. Under a two‐dimensional Hotelling model, we derive decentralized retailers' prices for the products, and distortions in pricing when compared to centrally optimal prices. We show that price distortions decrease as consumers' travel cost between retailers increases, due to less intense competition. However, price distortions do not change monotonically in consumers' switching cost between products within stores. To fix decentralized retailers' price distortions, we construct a two‐part pricing contract that coordinates the supply chain. We show that the coordinating contract is Pareto‐improving and analyze increase in the supply chain profit under coordination.     

Implications for the Role of Retailers in Quality Assurance

We investigate a manufacturer–retailer channel to explore the role of a retailer in assuring the quality of a manufacturer's product as a quality gatekeeper. Such a gatekeeping activity can entail a reduction in the defective rate for consumers, if the retailer charges the manufacturer a penalty for each identified defect that is no smaller than the market penalty for an unidentified defect. As a result of the retailer's gatekeeping, the change in the negotiated wholesale price only depends on the manufacturer's individual benefit, whereas the change in the retailer's optimal retail price is associated with the channel‐wide benefit. When the impact of quality relative to retail price on demand is higher, the retailer benefits more from her gatekeeping activity, thus having a greater incentive to take on the quality gatekeeping responsibility. Moreover, the retailer's gatekeeping generates a larger increase in the demand as well as each firm's profit, when the retailer has a stronger relative bargaining power.     

Manufacturer's pricing strategy for supply chain with warranty period-dependent demand

This article presents a review of the issues associated with a manufacturer's pricing strategies in a two-echelon supply chain that comprises one manufacturer and two competing retailers, with warranty period-dependent demands. The manufacturer, as a Stackelberg leader, specifies wholesale prices to two competing retailers who face warranty period-dependent demand and have different sales costs. The manufacturer considers three pricing options: (1) setting the same price for both retailers, while disregarding their difference with regard to sales cost; (2) setting a different price to each retailer on the basis of their sales cost; and (3) setting the same price to both retailers according to the average sales cost of the industry. In this article, the retailers' optimal warranty periods and their optimal profit, manufacturer's optimal wholesale price, and his/her optimal profit associated with different pricing strategies have been derived using the game theory. Our analysis shows that the results for retailers are the same with Strategy 1 or Strategy 3. In addition, we compared the effects of different pricing strategies of the manufacturer on supply chain decisions and profit. We conclude from the results that the manufacturer should either adopt Strategy 2 with symmetrical sales cost information or Strategy 3 if retailers' sales costs are asymmetrical.     

The Newsvendor Problem and Price‐Only Contract When Bankruptcy Costs Exist

We study a supply chain of a supplier selling via a wholesale price contract to a financially constrained retailer who faces stochastic demand. The retailer might need to borrow money from a bank to execute his order. The bank offers a fairly priced loan for relevant risks. Failure of loan repayment leads to a costly bankruptcy (fixed administrative costs, costs proportional to sales, and a depressed collateral value). We identify the retailer's optimal order quantity as a function of the wholesale price and his total wealth (working capital and collateral). The analysis of the supplier's optimal wholesale price problem as a Stackelberg game, with the supplier the leader and the retailer the follower, leads to unique equilibrium solutions in wholesale price and order quantity, with the equilibrium order quantity smaller than the traditional newsvendor one. Furthermore, in the presence of the retailer's bankruptcy risks, increases in the retailer's wealth lead to increased supplier's wholesale prices, but without the retailer's bankruptcy risks the supplier's wholesale prices stay the same or decrease in retailer's wealth.     

市场竞争下企业股权融资的供应链模型分析

股权融资是企业在市场竞争中抢占市场份额、实现跨越式发展的重要融资途径,企业融资决策的制定必须考虑产品市场上企业间的竞争行为.构建了双寡头零售商的股权融资模型,探讨零售商采取股权融资进行市场开拓时,市场竞争对其股权融资决策的作用机理.核心的发现是:零售商的股权融资应考虑不同成长性下市场竞争的直接和间接影响,市场竞争抑制(促进)了低成长性(高成长性)零售商的股权融资.供应商参与博弈后,零售商的融资策略取决于不同初始市场规模和成长性下的市场竞争与市场开拓之间的权衡.     

New Product Design under Channel Acceptance: Brick‐and‐Mortar,Online‐Exclusive,or Brick‐and‐Click

In recent years, an increasing number of brick‐and‐mortar retailers have entered into the new brick‐and‐click era. Within this context, when a manufacturer presents a new product offering to a retailer, the ultimate decision is often made by the retailer regarding (1) whether to carry the new product, and (2) the channel outlet the product will be carried in (i.e., in‐store only, online‐exclusive, or brick‐and‐click). In response to this trend, we examine how a manufacturer may use product design to influence a dual‐channel retailer's outlet designation decision. This is the first study to investigate a manufacturer's optimal product design strategy when a brick‐and‐mortar retailer expands online. We demonstrate that, to induce the retailer to carry a new product both offline and online, it may not always be optimal for the manufacturer to enhance product quality (compared with when the retailer only operates offline). With the online store addition, the retailer may also be incentivized to adjust his participation criterion to a level less than what is determined by his outside option.     

Optimal Pricing of Two Successive‐Generation Products with Trade‐in Options under Uncertainty

To entice consumers to purchase both current and next generation products, many manufacturers and retailers offer trade‐in programs that allow buyers of the first generation product to trade‐in the product and purchase the new generation product at a lower price. By considering the interactions between “forward‐looking” consumers and a firm when a trade‐in program is offered, we analyze a two‐period dynamic game to determine the optimal prices of two successive‐generation products in equilibrium, and examine the conditions under which trade‐in programs are beneficial to the firm. Our model incorporates market heterogeneity (valuation of the first generation product varies among the consumer population), product uncertainty (the incremental value of the new product is uncertain before its introduction), and consumers' forward‐looking behavior (consumers take future product valuation and prices into consideration when making purchasing decisions). With the trade‐in option, we show that consumers are willing to pay a price that is higher than their valuations of the current product. Furthermore, trade‐in programs are more beneficial to the firm when: (i) the durability of the current product is high; (ii) the market heterogeneity is low; or (iii) the uncertainty level (or the expected incremental value) of the new product is high. Finally, when the incremental value of the new product is more uncertain, consumers are more willing to purchase the current product because of the “option” value of the trade‐in programs and thus trade‐in programs can be more beneficial to the firm in this case.     

考虑跨渠道退货的双渠道闭环供应链决策研究

双渠道闭环供应链存在制造商网络直销渠道和零售商实体店零售渠道。消费者会对购买不满意的产品进行退货，由于网上商店购买的产品缺乏现场体验故退货率较高。相比线下实体商店，线上退货流程更为复杂，这往往容易影响消费者购物体验。因此本文设计考虑跨渠道退货的双渠道闭环供应链结构，并分析跨渠道退货率以及渠道消费偏好对供应链的决策影响，基于Stackelberg博弈和Nash均衡博弈理论，从集中式决策与分散式决策两方面研究不同闭环供应链结构下的定价决策与利润分配，并结合数值算例进行分析。研究结果表明，跨渠道退货率以及消费者渠道偏好对闭环供应链的定价策略以及利润分配等决策具有显著影响。     

The Roles of Bank and Trade Credits: Theoretical Analysis and Empirical Evidence

This study investigates the roles of bank and trade credits in a supply chain with a capital‐constrained retailer facing demand uncertainty. We evaluate the retailer's optimal order quantity and the creditors' optimal credit limits and interest rates in two scenarios. In the single‐credit scenario, we find the retailer prefers trade credit, if the trade credit market is more competitive than the bank credit market; otherwise, the retailer's preference of a specific credit type depends on the risk levels that the retailer would divert trade credit and bank credit to other risky investments. In the dual‐credit scenario, if the bank credit market is more competitive than the trade credit market, the retailer first borrows bank credit prior to trade credit, but then switches to borrowing trade credit prior to bank credit as the retailer's internal capital declines. In contrast, if the trade credit market is more competitive, the retailer borrows only trade credit. We further analytically prove that the two credits are complementary if the retailer's internal capital is substantially low but become substitutable as the internal capital grows, and then empirically validate this prediction based on a panel of 674 firms in China over the period 2001–2007.     

The Impact of Product Returns and Retailer's Service Investment on Manufacturer's Channel Strategies*

We study the distribution channel decision of a manufacturer who considers whether to add an online channel (direct channel) to its brick‐and‐mortar retailer (indirect channel). The retailer faces the opportunity to invest in store assistance to help consumers choose products and thus reduce product returns. Special attention is given to the impact of product returns and retailer's store assistance investment on manufacturer's dual channel decision. We examine conditions under which the manufacturer uses dual channels and how various relevant factors affect its channel decision under two settings, depending on whether the retailer has its own online store or not. When the retailer does not have its online store, we find that (i) the addition of the direct channel raises the wholesale price; (ii) the direct channel addition hurts the retailer if the nonreplacement rate is low; (iii) the manufacturer has a lower incentive to add the direct channel when the retailer's service cost is lower or its returns reduction rate from service investment is higher; and (iv) the manufacturer should treat its own returns handling cost as a key factor in its channel structure decision. In addition, when the retailer operates an online store, we find that the manufacturer may have an incentive to add a direct channel such that both firms own direct channels.     

Pricing Policy in a Supply Chain: Negotiation or Posted Pricing

This article examines the choice of pricing policy (posted pricing or negotiation) toward end customers in a supply chain. Many retailers actively decide whether or not to encourage negotiation on the shop floor. Of course, the retailer's pricing policy influences not only the retailer's profit, but also the profits of the manufacturers who sell through the retailer. However, little is known about the forces that shape the pricing policy when two self‐interested parties interact in a supply chain. We consider two alternative models depending on who has the power to decide the pricing policy: the manufacturer or the retailer. We find that an increase in the wholesale price weakens the retailer's ability to price discriminate through negotiation. Therefore, the retailer prefers negotiation at lower wholesale prices and posted pricing at higher wholesale prices. We also find that whenever the retailer prefers negotiation, the manufacturer does too. Therefore, the retailer's discretion over the pricing policy causes friction only when the retailer wants to use posted pricing, while the manufacturer wishes the retailer to use negotiation. We show that such friction arises only when product availability or the cost of negotiation is moderate. In this case, we show that the manufacturer may offer a substantial discount to persuade the retailer to negotiate. Surprisingly, in this region of friction, a decrease in the supply chain's capacity or an increase in negotiation costs (both of which are typically considered as worsening the retailer's business environment) translates into higher profit for the retailer.