Optimal pricing decisions of centralized dual-channel supply chains in a duopoly: a study on the influence of competition structure

A price competition amongst two centralized dual-channel supply chains (DCSCs) has been investigated in this study. Three scenarios of competition are studied—a simultaneous move game and two sequential games (one in which the first supply chain is the leader and the second supply chain is the follower, and vice versa). The optimal prices and profits for these scenarios have been derived and compared. It is observed that prices and profits are higher under Stackelberg (Sequential move) competition as compared to Simultaneous move competition. Finally, the present study determines which type of competition structure would persist in the market by using a Wait or Declare two-strategy game. The game depicts the market entry decision of the competing supply chains. The results reveal that self interest in competing dual-channel supply chains leads to a sequential move competition and consequently to higher product prices. To reduce the price and thus induce a customer favourable equilibrium, regulatory authorities like the government can step in and provide incentives. We derive a lower bound on the incentive which would implement a low market price equilibrium in Dominant Strategies. Further, we note that under competition, dual-channel supply chains outperform traditional supply chains only upto a certain threshold of the retail channel market share and we derive an expression for the same threshold. This threshold is found to be independent of the nature of the product.