The manufacturer's quality‐improvement decisions and evolutionary stable strategy of retailers' marketing objectives under network externality

Abstract

AbstractTo analyze the influence of network externality (NE) and bargaining power of retailers on the quality‐improvement decisions of the manufacturer, evolutionary stable strategy (ESS) of retailers' marketing objectives, and profits of retailers and the manufacturer, we developed an evolutionary game model of supply chain composed of a monopoly manufacturer and one population of retailers under NE. We found that the retailers' ESS is influenced by both NE and product quality‐improvement levels. With the improvement of NE or product quality‐improvement levels, the marketing objectives of retailers will experience three evolutionary stable states: profit maximization, coexistence of profit maximization and revenue maximization, and revenue maximization. The product quality‐improvement levels and retailers' profits do not necessarily improve with the increase of NE, which depend on the retailers' ESS, but the manufacturer's profits always benefit from NE. When retailers' bargaining power reaches a certain level, it can influence the ESS of retailers' marketing objectives. Interestingly, the retailers' bargaining power does not necessarily enhance their own profits; it is related to the ESS of retailers' marketing objectives but consistently reduces the manufacturer's profits.