Pricing Strategy in Dual-Channel Supply Chains with Loss-Averse Consumers
Chengli Liu (),
C. K. M. Lee and
K. H. Leung ()
Additional contact information
Chengli Liu: Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, 11 Yuk Choi Road, Hung Hom, Hong Kong
C. K. M. Lee: Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, 11 Yuk Choi Road, Hung Hom, Hong Kong
K. H. Leung: Department of Industrial and Manufacturing Systems Engineering’, The University of Hong Kong, HW 8-23, 8/F, Haking Wong Building, Pokfulam Road, Hong Kong
Asia-Pacific Journal of Operational Research (APJOR), 2019, vol. 36, issue 05, 1-22
Abstract:
In this paper, loss-averse consumer behavior during purchase decision-making process in the dual-channel supply chain is modeled. Loss-averse consumers prefer avoiding losses to gain utility with respect to their reference point while purchasing the product. Two product categories are classified: (1) basic product and (2) luxury goods which have lower and higher reference utility to consumers, respectively. The research objective is to determine the optimal price strategy in dual-channel supply chains and discuss the decision behind loss-averse consumers. To model consumers’ valuation of a product, prospect theory is adopted to calculate the demands of each channel. Then, the optimal pricing strategy and the corresponding profits are found out in a Stackelberg game manner. The results encourage manufacturers of basic goods to engage in dual-channel strategy. Effect of “double marginalization” is reduced if consumers are loss-averse in the dual-channel supply chain. Furthermore, the direct channel online contributes larger demand to the manufacturer. However, manufacturers of luxury goods are not suggested for dual-channel strategy because the demand for direct channel online is negligible and the demand for the retail channel remains unchanged. Nevertheless, retailers cannot obtain benefit from dual-channel and as a result, the profit of basic goods retailers will be reduced.
Keywords: Dual-channel; loss aversion; prospect theory; reference point; pricing strategy (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)
Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217595919500271
Access to full text is restricted to subscribers
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:wsi:apjorx:v:36:y:2019:i:05:n:s0217595919500271
Ordering information: This journal article can be ordered from
DOI: 10.1142/S0217595919500271
Access Statistics for this article
Asia-Pacific Journal of Operational Research (APJOR) is currently edited by Gongyun Zhao
More articles in Asia-Pacific Journal of Operational Research (APJOR) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().