Price competition between manufacturers selling to a common retailer under stock-out-based substitution

Date

2022-12-01

Author

Kılıç, Betül Diler
Karaer, Özgen
Bakal, İsmail Serdar

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We consider two partially substitutable products sold through a two-echelon supply chain, consisting of two manufacturers and one retailer. In case of a stock-out in one of the products, that product's demand can spill over to the competing product. We analyze the equilibrium pricing decisions of the manufacturers and ordering decision of the retailer in a three stage dynamic game for a single period. We investigate the effect of spillover rates on equilibrium decisions. We also evaluate the impact of spillovers being ignored by one of the manufacturers or all parties in the chain. We find that the retailer's order decision depends on the relative profitability of the products. As spillover rates increase, price competition between the manufacturers intensifies, and hence the double marginalization effect in the chain is mitigated.

Subject Keywords

Manufacturer competition, Pricing, Spillover effect, Substitution, Supply chain management

URI

https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=85141920120&origin=inward
https://hdl.handle.net/11511/101524

Journal

Computers and Industrial Engineering

DOI

https://doi.org/10.1016/j.cie.2022.108764

Collections

Department of Industrial Engineering, Article

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Citation Formats

B. D. Kılıç, Ö. Karaer, and İ. S. Bakal, “Price competition between manufacturers selling to a common retailer under stock-out-based substitution,” Computers and Industrial Engineering, vol. 174, pp. 0–0, 2022, Accessed: 00, 2023. [Online]. Available: https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=85141920120&origin=inward.