Manufacturer encroachment with equal pricing strategy

Shengming Zheng and Yugang Yu

Transportation Research Part E: Logistics and Transportation Review, 2021, vol. 152, issue C

Abstract: This study investigates the interplay between manufacturer encroachment and the manufacturer’s equal pricig strategy. Encroachment happens when a manufacturer opens up a direct channel to compete with a retailer’s traditional channel. The equal pricing strategy is that the manufacturer commits to setting a direct channel retail price that equals the price determined by the retailer in the traditional channel. We first consider the setting where one exclusive retailer sells products from a manufacturer that does not have the option of selling only through its direct channel. Our results show that the availability of the equal pricing commitment enhances the manufacturer’s incentive to encroach when the channel competition is intense and the encroachment cost is medium. Interestingly, the manufacturer’s equal pricing commitment always hurts the retailer even though it eliminates the price competition between the two channels. This is because the availability of the equal pricing commitment could motivate the manufacturer’s encroachment. Our analysis shows that the manufacturer’s equal pricing commitment always improves consumer surplus and sometimes improves the supply chain performance. However, when the retailer also sells a substitutable product from a different manufacturer or the manufacturer has the option of only direct selling, the equal pricing commitment sometimes benefits the retailer and sometimes reduces the consumer surplus.

Keywords: Encroachment; Supply chain; Direct channel; Equal pricing; Channel conflict (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1366554521001174
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:transe:v:152:y:2021:i:c:s1366554521001174

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/bibliographic
http://www.elsevier. ... 600244/bibliographic

DOI: 10.1016/j.tre.2021.102346

Access Statistics for this article

Transportation Research Part E: Logistics and Transportation Review is currently edited by W. Talley

More articles in Transportation Research Part E: Logistics and Transportation Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().