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Title: Product variety and channel structure strategy for a retailer-Stackelberg supply chain
Authors: Xiao, T
Choi, TM 
Cheng, TCE 
Keywords: Customization
Dual channels
Game theory
Product variety
Supply chain management
Issue Date: 2014
Publisher: Elsevier
Source: European journal of operational research, 2014, v. 233, no. 1, p. 114-124 How to cite?
Journal: European journal of operational research 
Abstract: Motivated by the observations that the direct sales channel is increasingly used for customized products and that retailers wield leadership, we develop in this paper a retailer-Stackelberg pricing model to investigate the product variety and channel structure strategies of manufacturer in a circular spatial market. To avoid channel conflict, we consider the commonly observed case where the indirect channel sells standard products whereas the direct channel offers custom products. Our analytical results indicate that if the reservation price in the indirect channel is sufficiently low, adding the direct channel raises the unit wholesale price and retail price in the indirect channel due to customization in the direct channel. Despite the fact that dual channels for the retailer may dominate the single indirect channel, we find that the motivation for the manufacturer to use dual channels decreases with the unit production cost, while increases with (i) the marginal cost of variety, (ii) the retailer's marginal selling cost, and (iii) the customer's fit cost. Interestingly, our equilibrium analysis demonstrates that it is more likely for the manufacturer to use dual channels under the retailer Stackelberg channel leadership scenario than under the manufacturer Stackelberg scenario if offering a greater variety is very expensive. When offering a greater variety is inexpensive, the decentralization of the indirect channel may invert the manufacturer's channel structure decision. Furthermore, endogenization of product variety will also invert the channel structure decision if the standard product's reservation price is sufficiently low.
ISSN: 0377-2217
EISSN: 1872-6860
DOI: 10.1016/j.ejor.2013.08.038
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