Price and Warranty Competition in a Duopoly Supply Chain

Chapter
Part of the International Handbooks on Information Systems book series (INFOSYS)

Abstract

This chapter analyzes the coordination and competition issues in a two-stage distribution channel where two different retailers compete on their retail price and warranty policy to sell two substitutable products in the same market. The demand faced by each retailer not only depends on its own price and warranty duration, but also on the price and warranty duration set by the other. Mathematical models have been developed to analyze the dynamic competition and coordination mechanism for three different cases where retailers compete (1) exclusively on price; (2) exclusively on warranty duration; (3) both price and warranty duration.

The mathematical models show that under price/warranty competition, the steady state equilibrium is dynamically stable in nature under certain condition(s). Further, it has been shown that the channel profit for each case is higher under coordination than that of under competition and the maximum channel profit is achieved when retailers coordinate each other to adopt a centralized policy to set both price and warranty duration. However, it has been observed that though coordination enhances overall supply-chain profitability, it may make consumers worse-off due to higher product prices. The model is illustrated with suitable numerical examples.

Keywords

Competition Coordination Game-theory Pricing Stability Supply-chain management Warranty 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  1. 1.Complex Decision Support Systems, Tata Consultancy Services, Akruti Trade CentreMIDCMumbaiIndia
  2. 2.Department of Industrial Engineering and ManagementIndian Institute of TechnologyKharagpurIndia

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