Free or bundled: Channel selection decisions under different power structures |
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| Institution: | 1. China Academy of Corporate Governance, Business School, Nankai University, 94 Weijin Rd., Tianjin 300071, P.R. China;2. The Rawls College of Business Administration, Texas Tech University, Lubbock, Texas 79409-2101, USA;3. Sichuan Key Lab of Financial Intelligence & Financial Engineering, Southwestern University of Finance & Economics, Chengdu 611130, Sichuan, P. R. China;4. School of Management, Tianjin University of Technology, 391 Binshuixi Road, Tianjin 300384, P.R. China;5. Finance and Quantitative Management Department, Bill Greehey School of Business, St. Mary''s University, San Antonio, TX 78228, USA |
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| Abstract: | The smart phone industry has unique supply chain relationships. Companies at all levels of the supply chain compete and coordinate with each other for market share and profit. This paper examines the impact of power structures on the decision of pricing and channel selection between a free channel and a bundled channel. We investigate the smart phone supply chain that consists of a handset manufacturer and a telecom service operator. Based on game theory models, the manufacturer?s optimal retail pricing policies in free and bundled channels and the telecom service operator?s optimal subsidy policies in a bundled channel are derived under different power structures. It is demonstrated that the firm that has higher channel power will gain more profit, and the smart phone supply chain?s profit in a Vertical Nash (VN) power structure is higher than that in Telecom Service Operator-Stackelberg (TS) and Manufacturer-Stackelberg (MS) power structures. It is also shown that the smart phone supply chain will choose a bundled channel in TS and MS power structures under certain conditions and will select a free channel in a VN power structure. |
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| Keywords: | Service operations Channel selection Pricing Power structure Game theory |
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