Service and Pricing Strategies with Competition and Cooperation in a Dual-channel Supply Chain with Demand Disruption

Abstract We study the pricing and service strategies with retailers’ competition and cooperation in a dual-channel supply chain system consisting of one manufacturer and two retailers, in which the manufacturer sells a single product through an online direct channel and two retail channels. Providing the product with value-added service, each retailer, in the presence of price and service competitions, can choose to cooperate or not. Considering each channel’s demand disruption, where the disrupted demand switches to other channels, and using the game theory and two-stage optimization method, we derive the Stackelberg-Nash equilibrium in retailer cooperation (RC) model and retailer independence (RI) model, respectively. We conduct numerical experiments and find that the retailers’ cooperation enhances each retailer’s performance, but surprisingly reduces the profits of the manufacturer and the whole system. In both models, one retailer benefits from the demand disruption of other channels, whereas the manufacturer and the whole system are always worse-off in the presence of demand disruption from any channel, and better-off when the disrupted demand of one channel switches more to other channels.