Dual-channel decision models for the transnational supply chain considering strategic inputs and compensation

Abstract

Based on a transnational dual-channel supply chain consisting of the domestic manufacturer and retailer, this paper constructs four models, namely, the without tariff model, the tariff model, the retailer’s strategic inputs model, and the manufacturer’s compensation model, to investigate the impact of the tariff imposing on supply chain decisions, the effect of the retailer’s strategic inputs to hedge against tariffs, and the incentive effect of the manufacturer’s compensation. The results show that the tariff imposed by the foreign government leads to higher product prices and lower sales volumes, resulting in welfare losses for foreign consumers. When the domestic retailer makes strategic inputs, the prices of products in the foreign market decrease and the sales volumes increase, which increases the profits of the domestic retailer and manufacturer and improves the welfare of foreign consumers. The equilibrium solutions of the models also show that the manufacturer has an incentive to compensate the retailer for its strategic inputs; when the manufacturer compensates for the retailer’s strategic inputs, the profit of the retailer and the manufacturer will be improved again, and thus, the whole supply chain will achieve Pareto improvement.