Strategic Integration Decision under Supply Chain Competition in the Presence of Online Channel
Abstract
:1. Introduction
- (a)
- competing manufacturers’ and retailers’ strategies in equilibrium;
- (b)
- the equilibrium price in the online and retail channels, and wholesale prices;
- (c)
- the total profits for each SCs?
2. Problem Statement
3. Main Analytical Results
3.1. Benchmark Models
3.1.1. Optimal Decisions in Scenario BM
3.1.2. Optimal Decisions in Scenario DD
- 1.
- Market price of product from is always higher compared to , because .
- 2.
- Wholesale price for first product is less compared to product at online channel, i.e., , if .
3.2. Vertical Integration
Optimal Decision in Scenario II
- 1.
- Total profit for the first SC is always higher compared to Second SC because .
- 2.
- Market price for the first product in an online channel is higher compared to price of that in the retail channel if , because .
- 3.
- Price of the first product is always higher compared to the second product in retail channel, because .
- 4.
- Profits in the first retail channel is always less compared to the second retail channel because .
3.3. Optimal Decision in Scenario ID
- 1.
- Retail price for the first retail channel remains higher compared to the second retail channel because if . Sales volume for first retail channel is also less compared to second retail channel because
- 2.
- Price of the first product in retail channel will be higher compared to the online channel, if
- (1)
- Total profit for the first SC is higher in Scenario II compared to BM, i.e., if
- (2)
- Total profit for the first SC is higher in Scenario II compared to DD, i.e., if
- (3)
- Total profit for the first SC is higher in Scenario ID compared to Scenario BM, i.e.,
- (4)
- Total profit for the first SC is higher in Scenario ID compared to Scenario DD, i.e.,
3.4. Optimal Decision in Scenario UC
- 1.
- Unlike all four scenarios in the presence of an online channel, market prices, profits for two retailers, and wholesale prices remain identical for two competing SCs.
- 2.
- Market price of the first product is always higher in an online channel compared to a retail channel, i.e., if
- 3.
- Wholesale price for the first product is less compared to its price at online channel, i.e., , if
- If a competing manufacturer opens an online channel, then consumers can receive the first products at a lower price.
- If an upstream manufacturer opens an online channel, then the retailer in that SC may lose a significant amount of profit, as well as consumers in the future. Due to easy access to the internet, if consumers continuously find the product available online at a cheaper price or similar types of products in other retail outlets at a lower price, they may intend to buy the product online or change their minds in the future.
- All the competing members have the opportunity to receive a higher profit in the presence of an online channel compared to Scenario BM. Due to the additional price option and consumer cross-price elasticity, members are somehow bound to reduce the price for the products. Consequently, demand increases and total profit also increases.
- Both horizontal and vertical integration decisions can improve total profits for each competing SCs.
4. Result Analysis and Discussion
4.1. Nature of Retail Prices in Different Scenarios
4.2. Nature Profits for Two Competing SCs in Five Scenarios
4.3. Managerial Insights
5. Conclusions
Author Contributions
Funding
Conflicts of Interest
Appendix A. Derivation of the Optimal Decision in Scenario BM
Appendix B. Derivation of the Optimal Decision in Scenario DD
Appendix C. Derivation of the Optimal Decision in Scenario II
Appendix D. Derivation of the Optimal Decision in Scenario ID
Appendix E. Derivation of the Optimal Decision in Scenario UC
Appendix F. Prof of Proposition 3
Appendix G. Optimal Decision in the Absence of Online Channel
Decision | Scenario BM/DD | Scenario II | Scenario UC | Scenario ID |
---|---|---|---|---|
- | - | |||
- | ||||
- | - | |||
- | ||||
- | - | |||
- | ||||
Appendix H. List of Symbols
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Notations | Descriptions |
---|---|
Indices | |
i | index for ith SC, |
j | index for decision scenarios, |
Parameters | |
a | market potential for each SC |
the cross-price sensitivity of consumers between two retail channels, | |
the cross-price sensitivity of consumers between retail and online channels, | |
Variables | |
wholesale price of per unit ith product | |
retail price of per unit ith product in the traditional retail channel | |
retail price of per unit first product in the online channel | |
profit of the ith retailer | |
profit of the first manufacturer, i.e., sum of profits from the retail channel () and online channel(), and | |
profit of the second manufacturer | |
profit of the first SC, i.e., sum of profits form the retail channel() and online channel(), and | |
total profit of the second SC | |
sales volume of ith SC |
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Saha, S.; Nielsen, I. Strategic Integration Decision under Supply Chain Competition in the Presence of Online Channel. Symmetry 2021, 13, 58. https://doi.org/10.3390/sym13010058
Saha S, Nielsen I. Strategic Integration Decision under Supply Chain Competition in the Presence of Online Channel. Symmetry. 2021; 13(1):58. https://doi.org/10.3390/sym13010058
Chicago/Turabian StyleSaha, Subrata, and Izabela Nielsen. 2021. "Strategic Integration Decision under Supply Chain Competition in the Presence of Online Channel" Symmetry 13, no. 1: 58. https://doi.org/10.3390/sym13010058