Eng | 

Dynamic Pricing in Dual-Channel Supply Chains with Strategic Consumers



The aim of this project is to conduct research to study dynamic pricing and channel structures for the supply chains facing strategic consumers.

With the emergence and popularity of e-commerce, many firms nowadays sell their product via both brick-and-mortar and on-line stores in order to capture more of the market demand. Meanwhile, consumers are getting more sophisticated in deliberately delaying their purchasing when waiting for markdowns, and this has  particularly been so during the recent economic downturn. Thus, it is imperative for firms to study the impact of  channel structures and to design an effective pricing strategy to alleviate the negative impact of strategic purchasing behavior and improve their profitability.

We will develop quantitative supply chain models with single and dual sales channels, in which a manufacturer sells its product through a retailer and/or an on-line channel. Customers are two-dimensionally heterogeneous in their purchasing effort through each channel. During each period, the manufacturer decides the wholesale price for selling to the retailer, and both the manufacturer and the retailer decide the retail prices to customers. After seeing the prices, customers make a purchase decision by weighing the benefit of purchasing from one channel as against the other during the current period  as well as against the benefits of waiting and then purchasing in the future. The firms realize this and dynamically set their prices to take into account such customer behavior. Also, the customers have rational expectations, and in equilibrium can predict the pricing policy of the firms. Both firms aim to maximize their total profit over a finite planning horizon. We will firstly analyze the single-channel model, in which the sales channel can be either centralized or decentralized. We will derive the unique sub-game perfect Nash equilibrium (SPNE) of this dynamic game and investigate whether and how price skimming arises in the retail price and the wholesale price. Then we will focus on the dual-channel model with various channel structures, and study the cases with identical and non-identical retail prices.

By means of comparisons, we will investigate how different channel structures affect the equilibrium pricing strategies and the firms' profitability, in particular, to what extent, dual-channel structures can mitigate the strategic behaviors of consumers. Moreover, how much profit each firm and the supply chain would lose when implementing the myopic pricing policy will also be examined. Finally, we will consider price commitment and quantity decisions and study their impact.


Project In-charge:    Prof.  Sean Zhou

Duration:  Jan 2015 – Dec 2017

Sponsor(s):   Hong Kong Research Grant Council, UGC