DECISION-MAKING FOR SUBSTITUTABLE PRODUCTS IN A RETAILER DOMINANT CHANNEL INVOLVING A THIRD-PARTY LOGISTICS PROVIDER

Abstract

This paper investigates pricing and ordering decisions in a supply chain comprised of two competing manufacturers, a dominant retailer, and a third-party logistics (3PL) provider. Product distribution functions may be implemented by the 3PL provider and the two competing manufacturers. The advantages of logistics outsourcing lie in the lower cost and the professional logistics service, which affect the decision-making of the supply chain members. This paper adopts a novel approach to logistics outsourcing, in which it is regarded as an endogenous variable when supply chain members make decisions. We obtain the equilibrium decisions of supply chain members with the aid of a Stackelberg game. Furthermore, we investigate the effects of various parameters, such as market size, price sensitivity, product differentiation, and production costs on equilibrium decisions, thereby gaining valuable managerial insights. Finally, we present numerical analyses with respect to the above parameters in order to examine our theoretical results and to study their effects on channel performance.