Pricing Model for Dual Sales Channel with Promotion Effect Consideration

Abstract

We focus on the pricing strategy of a dual sales channel member when his/her online retailer faces an upcoming overloaded express delivery service due to the sales peak of online shopping, especially referring to the occurring affairs in China. We characterize the pricing problem of the dual selling channel system as a two-period game. When the price discount is only provided by the online seller, we find that the prices of the traditional channel and the online channel in the two periods are higher while the overloaded degree of express delivery is lower and the overloaded delivery services can decrease the profits of both channels. When the price discounts are provided by both traditional and online sellers, we find that the derived Nash price equilibrium of both channels includes five possible combinations of prices. Both traditional and online sellers will choose their price strategies, respectively, according to their cost advantages which are affected by the overloaded degree of express delivery.