Pricing strategy of mixed traditional and online distribution channels based on Stackelberg game

Abstract

Strategies of pricing based on Stackelberg competition between manufacturer and distributor are discussed under the condition that both traditional and online channels exist. A system consisting of a manufacturer, a distributor and customers is considered, in which the manufacturer can sell products to the distributor, who, in turn, sells the products to customers through traditional channel, or the manufacturer can transact directly with the customers in an electronic manner. The manufacturer and the distributor establish models with the respective objection of maximizing expected profit. The manufacturer regards the price of products sold to distributor through traditional and online channels as decision variables, while the distributor's decision variable is the price of products sold to customers, and the distributor's decision variable is the function of the manufacturer's decision variable. At last, the numerical examples are used to show the application of pricing models. © Springer-Verlag Berlin Heidelberg 2005.