Warranty and price optimization in a competitive duopoly supply chain with parallel importation

Ata Allah Taleizadeh, Shirin Hadadpour, Leopoldo Eduardo Cárdenas-Barrón () and Ali Akbar Shaikh

International Journal of Production Economics, 2017, vol. 185, issue C, 76-88

Abstract: Gray market has always been an opposing challenge for manufacturers. Parallel markets tend to purchase the manufacturer's product at a lower price and resell it in another market with a higher price. In order to ameliorate the effects of parallel importation, the offering of a warranty for authorized channels is suggested as a competitive strategy. This paper considers two markets with different levels of willingness to pay. A manufacturer is present at both of these markets and offers the same product with different prices according to each market's willingness to pay. In the market with a lower willingness to pay, the manufacturer's product is not only purchased by a group of customers, but also by the parallel importer who later attempts to sell this product in the market with a higher willingness to pay. Moreover, in the market with lower willingness to pay, the manufacturer competes with another manufacturer that offers a similar product. A model for this problem is proposed when the manufacturer offers warranty as a competitive strategy against the parallel importer at the market with higher willingness to pay. Furthermore, a numerical example and a sensitivity analysis for the model are presented. Additionally, due to the practicality of this problem, managerial insights are included at the end of this research work.

Keywords: Gray market; Parallel importation; Warranty; Price optimization; Competitive supply chain (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:185:y:2017:i:c:p:76-88

DOI: 10.1016/j.ijpe.2016.12.022

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