Problem description. We consider a dual channel in which a focal manufacturer (he) sells his output through his online store and an independent brick-and-mortar retailer (she). In this manufacturer-centric dual channel, we study product line, stocking, and pricing decisions in the presence of stochastic demand and inventory constraints. The pricing decisions include choosing whether to give price match guarantees (PMGs), standard in the U.S. retail practice. Methodology/Results. We analyze a game-theoretic model in which a focal manufacturer designs a product line, sets wholesale prices, and decides what products to sell in the dual channel. An independent brick-and-mortar retailer responds to the product line design and the wholesale prices by making stocking decisions in her store. Then, both stores observe demand and independently set retail prices subject to any PMGs that the stores gave to consumers. The brick-and-mortar store (online store) fulfills demand in a make-to-stock (make-to-order) fashion. We find that whenever one of the stores holds a competitive advantage, the manufacturer sells the same product line in both stores. If the brick-and-mortar store holds an advantage, it matches the online store’s retail price to obtain favorable wholesale pricing from the manufacturer. We find no equilibria where the online store price matches the brick-and-mortar store or the stores’ prices match each other. Finally, when neither store has a clear advantage, the manufacturer mitigates price competition by designing a different product for each store. Managerial implications. Our model helps identify optimal stocking and pricing strategies that depend on e-fulfillment cost and demand uncertainty and offers a novel reason for offering PMGs in a supply chain.
Consumers with inequity aversion experience some psychological disutility when buying products at unfair prices. Empirical evidence and behavioral research suggest that consumers may perceive a firm’s price as unfair when its profit margin is too high relative to consumers’ surplus. We develop a game-theoretic model to investigate the effects of the consumer’s inequity aversion on a firm’s optimal pricing and quality decisions. We highlight several interesting findings. First, because of the consumer’s uncertainty about the firm’s cost, the firm’s optimal quality may be non-monotone with respect to the degree of the consumer’s inequity aversion. Second, stronger inequity aversion makes an inefficient firm worse off, but may benefit an efficient firm. Third, we show that stronger inequity aversion by the consumer can actually lower the consumer’s monetary payoff (economic surplus) because the firm may reduce its quality to a greater extent than it reduces its price. Lastly, as the expected cost-efficiency in the market decreases, both the expected quality and the social welfare may increase rather than decrease.
Problem Description. We consider a dual-channel in which a focal manufacturer (he) sells his output through his online store and an independent brick-and-mortar retailer (she). In this manufacturer-centric dual-channel, we study product line, stocking, and pricing decisions in the presence of stochastic demand and inventory constraints. The pricing decisions include choosing whether or not to give price match guarantees (PMGs), standard in the U.S. retail practice.Methodology/Results. We analyze a game-theoretic model in which a focal manufacturer designs a product line, sets wholesale prices, and decides what products to sell in the dual-channel. An independent brick-and-mortar retailer responds to the product line design and the wholesale prices by making stocking decisions in her store. Then, both stores observe demand and independently set retail prices subject to any PMGs that the stores gave to consumers. The brick-and-mortar store (online store) fulfills demand in a make-to-stock (make-to-order) fashion. Whenever one of the stores is competitive, the manufacturer sells the same product line in both stores. Moreover, if the brick-and-mortar store has an advantage over the online store, it matches its price to obtain favorable wholesale pricing. We find no equilibria where the online store price matches the brick-and-mortar store or the stores price match each other. Finally, when neither store has a clear advantage, the manufacturer mitigates price competition by designing a different product for each store.Managerial Implications. Our model helps identify optimal stocking and pricing strategies that depend on e-fulfillment cost and demand uncertainty and offers a novel reason for offering PMGs in a supply chain.
The deformation behavior of the Zr41.2Ti13.8Cu12.5Ni10Be22.5 bulk metallic glass (Vit1) in the supercooled liquid region was investigated. The stress-strain relations for Vit1 at the different specimen sizes were established in a uniaxial compression test using the microforming system. Furthermore, the effects of forming time, temperature and punch velocity on the flow stress of the specimen with a typical size of Φ1×1.5 mm were analyzed. The results indicate that Vit1 has excellent superplastic microformability at minimum forming time, higher temperature and lower punch velocity. Based on the research, Vit1 microgears with reference diameter of Φ1 mm and modulus of 0.1 mm were manufactured using the closed die forging. Optimum processing parameters were obtained. In order to evaluate the quality of Vit1 microgears, scanning electron microscope, atomic force microscope and nanoindentation tests were applied. It is found that the parts with good qualities can be formed successfully in the supercooled liquid region.
Problem Description: In practice, many consumer products are produced and stocked in product lines rather than in single variants. The issue is that manufacturers and retailers often do not agree on the product line length (number of variants included in the product line). The focus of this study is to understand how product line length and stocking quantities depend on how demand risk is contractually allocated. Academic/Practical Relevance: Our model combines assortment and stocking decisions in the presence of stochastic demand; previous models could address either assortment or stocking issues, but not necessarily both. Methodology: We present a game-theoretic model of a bilateral supply chain in which a manufacturer (he) sells up to two differentiated products through a retailer (she). He decides which products to produce, their wholesale prices, and how to allocate demand risk. We theorize that he can either retain the risk (by adopting a pull contract) or that he can pass it onto the retailer (by adopting a push contract). She responds by choosing assortment, quantities, and retail prices. By solving the model, we develop a descriptive theory that clarifies his incentive to expand his product offering and to reallocate demand risk within the supply chain. Results: Depending on the level of product differentiation, we identify three regions. When product differentiation is either low (commodities) or high (specialized products), the contract choice affects order quantities but not assortment. In these regions, the manufacturer’s contract choice can be explained by looking at elasticity of wholesale demand. For products with some differentiation, the manufacturer’s contract choice affects both order quantities and assortment. In this region, the manufacturer’s contract choice can be explained by looking at the additive effect of demand elasticity and sales expansion from the extended product line net of cannibalization. Managerial Implications: Our paper can be seen as a first step toward developing a link between optimal product line design and optimal risk allocation in a bilateral supply chain.
Bank financing is a traditional source of capital for small businesses, whereas crowdfunding has recently emerged as an alternative fund-raising solution to support innovative ideas and entrepreneurial ventures. We investigate the equilibrium relationship between a firm's funding choice and word-of-mouth (WOM) communication among consumers, and its consequent impact on product quality, consumer surplus, and social welfare. Depending on what kind of information is transferred via social interactions, we look at two types of WOM: informative (where WOM expands awareness of the product in the retail market) and learning (where WOM helps consumers to learn the product's true quality in the crowdfunding market). We find that more active WOM communication always benefits the firm and favors crowdfunding adoption. However, product quality may either increase or decrease as WOM expands. More importantly, consumer surplus and social welfare always increase in informative WOM, but may decrease in learning WOM. Lastly, expansion of the crowdfunding platform (i.e., attracting more consumers as platform users) always enhances the value of crowdfunding under informative WOM, but it could discourage crowdfunding adoption under learning WOM.
Multi-channel retailing is appealing as it offers an opportunity to reach more consumers, yet retailers need to take caution when determining the selling prices for the same product sold across different channels, especially when the market is filled with some consumers who exhibit inequity aversion and incur disutility if the channel they buy from charges a higher retail price than the other channel. In this paper, we propose a stylized game-theoretic model to investigate a multi-channel retailer's optimal pricing strategy in the presence of consumers' fairness concerns regarding inconsistent prices across channels. We investigate the impact of consumers' fairness concerns on the firm's pricing strategy, profitability, and consumers' surplus. Among other results, we find that the multi-channel retailer should maintain consistent price across both channels only when the fraction of fair-minded consumers is in a intermediate range, and otherwise charging inconsistent channel prices is more profitable. Particularly, as more consumers exhibit fairness concerns, the retailer may even switch from consistent pricing strategy to inconsistent pricing strategy. Moreover, as the fraction of fairness-concerned consumers increases, the retailer may enjoy a higher profit by strategically enlarging the price gap between the two channels to migrate more consumers to shop from the more cost-efficient channel. By contrast, a stronger degree of fairness concern always reduces the retailer's profit. Finally, we investigate the impact of fairness concerns on consumers' total monetary surplus, and find that either enhancing the degree of fairness concerns or expanding consumers' awareness of fairness concerns may not necessarily benefit consumers. Interestingly, we find that both the retailer and the consumers can possibly achieve a win-win outcome as the market fills with more fairness-concerned consumers, but may experience a lose-lose outcome when the existing fairness-concerned consumers have stronger inequity aversion.
Problem description: In practice, many consumer products are produced and stocked in product lines rather than in single product variants. The issue is that manufacturers and retailers often do not agree on the product line length (i.e., the number of variants included in the product line). The focus of this study is to understand how product line length and stocking quantities depend on how demand risk is contractually allocated. Academic/practical relevance: Our model combines assortment and stocking decisions in the presence of stochastic demand; previous models could address either assortment or stocking issues, but not necessarily both. Methodology: We present a game-theoretic model of a bilateral supply chain in which a manufacturer (he) sells up to two differentiated products through a retailer (she). He decides which products to produce, their wholesale prices, and how to allocate demand risk. We theorize that he can either retain the risk (by adopting a pull contract) or that he can pass it onto the retailer (by adopting a push contract). She responds by choosing assortment, quantities, and retail prices. By solving the model, we develop a descriptive theory that clarifies his incentive to expand his product offering and to reallocate demand risk within the supply chain. Results: Depending on the level of product differentiation, we identify three regions. When product differentiation is either low (commodities) or high (specialized products), the contract choice affects order quantities but not assortment. In these regions, the manufacturer’s contract choice can be explained by looking at elasticity of wholesale demand. For products with some differentiation, the manufacturer’s contract choice affects both order quantities and assortment. In this region, the manufacturer’s contract choice can be explained by looking at the additive effect of demand elasticity and sales expansion from the extended product line net of cannibalization. Managerial implications: Our paper can be seen as a first step toward developing a link between optimal product line design and optimal risk allocation in a bilateral supply chain.
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