Abstract
We study a supply chain consisted of a supplier and both retailers, and the supplier sells a single product through a dominant retailer and a weak retailer. The aggressive bargaining behavior of the dominant retailer brings the supplier much concern and two feasible strategies are presented to respond to that: difference-setting wholesale pricing contract and integration with the weak retailer. We investigate the decisions of supply chain members under each solution and find that, compared to the traditional form, the supplier always benefits from announcing the difference-setting wholesale pricing contract for it not only raises the marginal wholesale profits of both channels but also reduces the market share of the dominant retailer, thus potentially weakening its channel power. In addition, we show that combining with the weak retailer is not a wise choice for suppliers when the dominant retailer with relatively little bargaining power enjoys a large market share. Finally, by comparing the equilibria of these two solutions, we find that the optimal choice for suppliers depends not only on the difference in market share but also on the dominant retailer’s bargaining power in the negotiation.
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The author acknowledges the valuable comments of the editor and the area editor, and also gratefully acknowledge the support from National Natural and Science Foundation of China with Grant Number 71971134.
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Conglin Hu is a graduate student at School of Economics and Management, Shanghai Maritime University. His research interests focus on supply chain management.
Bin Liu is a professor at School of Economics and Management, Shanghai Maritime University. His research interests focus on operations management in the digitization and intellectualization era, dual channel supply chain management, grey system application.
Yunhui Liu is an associate professor at Research Center for Contemporary Management, Key Research Institute of Humanities and Social Sciences at Universities, School of Economics and Management, Tsinghua University. His research interests focus on operations management in the digitization and intellectualization era, supply chain management, clean and low carbon energy strategy etc.
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Hu, C., Liu, B. & Liu, Y. Strategic Response to a Powerful Downstream Retailer: Difference-Setting Wholesale Pricing Contract and Partial Forward Integration. J. Syst. Sci. Syst. Eng. 31, 89–110 (2022). https://doi.org/10.1007/s11518-021-5505-5
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DOI: https://doi.org/10.1007/s11518-021-5505-5