Distribution of profit in a smart phone supply chain under isoelastic demand

This study investigates a novel supply chain (smart phone) where end consumers purchase handsets (smart phones) and service either separately (free channel) or together as a package (bundled channel). Our study considers three different power structures for the bundled channel – the handset manufacturer is the Stackelberg leader, the service operator is the Stackelberg leader and finally both the players (handset manufacturer and service provider) decide simultaneously – Vertical Nash. Previous studies have used a linear deterministic demand function to show that the supply chain player possessing superior channel power gains superior profit. We use an isoelastic deterministic demand function to point out anomalies or contradictions in already existing smart phone supply chain literature. Under isoelastic deterministic function that represents demand for smart phones we show that the supply chain player possessing superior channel power need not earn superior profits.