Study on the complexity of channel pricing game in showrooming O2O supply chain

Abstract

An O2O supply chain consisting of a manufacturer with an online direct channel and a retailer who resells through a brick-and-mortar store is considered. Three channel power structures (vertical Nash, manufacturer Stackelberg, and retailer Stackelberg) and three pricing sequences (simultaneous pricing, manufacturer pricing early, retailer pricing early) are considered. Counter-intuitively, under the manufacturer Stackelberg structure, the retailer has a first-mover advantage and retailer-pricing-early achieves Pareto optimality. In the other cases, the manufacturer and the retailer have a late-mover advantage. Under the vertical Nash structure, both parties may get into a prisoner’s dilemma. Extending the basic model to dynamic pricing, we found that the first mover of sequential pricing has better stability. The retailer Stackelberg structure has better stability than the vertical Nash structure and the manufacturer Stackelberg is the most unstable power structure. To avoid the negative impact of equilibrium price instability, the vertical and horizontal price matching mechanisms are proposed and the effectiveness in improving stability is proved.