Channel Management and differentiation strategies: A case study from the market for fresh produce

The paper analyses the current differentiation strategies in the market for fresh produce. First a short review of the literature on channel structure and product differentiation is presented, in order to identify, on a theoretical grounding the incentives for differentiation strategies. Second, a case study is drawn of a UK channel intermediary organisation carrying out differentiation policies in the fresh produce category (on behalf of UK multiple retailer customers) supplied by a dedicated Italian grower. Results show that in the fresh produce industry there is room for product differentiation, but with contradictory welfare effects.fresh produce, product differentiation, channel structure and management, Agribusiness, Marketing,

Model Development for Manufacturer Price and Retailer Service Competition in a Duopoly Common Retailer Channel

A model had been considered where there is price competition between two manufacturers and one retailer. Subsequently, this model was extended by including price competition between two manufacturers and two retailers. Moreover, price and service competition had been studied where there are two manufacturers producing competing products and selling them through a common retailer. The consumer demand depends on two factors: (1) retail price and (2) service level provided by the manufacturer. In this study, a channel structure in which there are duopoly manufacturers and duopoly common retailers in competition between channel members under wholesale price and retail’s margin and service provided by retailer was studied. Customer demand depends on two factors: (1) price and (2) service level provided by the retailer. Both of these manufacturers produce competing products and sell their products to both common retailers. This study focuses on the role of service provided by the retailer, how the bargaining power can affect the decision variables and channel member’s profit, when there is competition between the retailers service and margin and manufacturers price (decision variables). To overcome this problem a solution on the effect of bargaining power to supply chain equilibrium was studied. The demand function model was developed by considering service by retailer in duopoly retailer channel structure. The effect of bargaining power on equilibrium solution when the manufacturer or the retailer is a leader, and the effect of increase production cost and market base and price and service competition index on the channel’s decision variables was determined. The game theory approach was used to derive equilibrium solutions for wholesale prices, retailer margins and service, and profits for each channel member. To study the effect of bargaining power in this supply chain equilibrium solution, Manufacturer Stackelberg, Retailer Stackelberg, and Vertical Nash were used. In this study, it was shown that customers receive the least benefit from service when the retailer is leader. They are better off when the manufacturer is leader. The effect of changes in price competition indexes (b p , θ p ), service competition indexes (bs , θ s ), production cost ( ), and market base ( ) on market sensitivity were analyzed. The result showed that when c of one manufacturer increases, the firm can sell its product at a higher price and with lower quantity but its competitor benefits. By increasing the market base of one of the manufacturers, the wholesale and retail price increase. When customer tends to choose a product with lower price, the manufacturer sells its product with lower wholesale price. Since, it was assumed that the cost of providing service increases by the power of 2, it is not economical to invest in service. Therefore, by increasing ci aij i θ sand bs the service level first increases and then decreases

Strategic Inventories in a Supply Chain with Vertical Control and Downstream Cournot Competition

Strategic Inventory (SI) has been an area of increased interest in theoretical supply chain literature recently. Most of the work so far however, has only considered a supply chain without downstream competition between retailers. Competition is ubiquitous in most market situations, hence, interactions between SI and retailer competition merits study as a first step in bringing the conversations and insights from this stream of literature to the real world. We present here a two-period and a three-period model of one manufacturer supplying an identical product to two retailers who form a Cournot duopoly. We also study a Commitment contract, where the manufacturer commits to all the selling seasons’ wholesale prices at the beginning of the 1st period. Commitment contracts have been shown previously to eliminate SI carriage over two selling seasons in the absence of retailer competition. We aim to deduce if this type of contract has the same effect in the presence of downstream competition. We determine closed-form Nash Equilibrium decision variable values for each of these models using game-theoretic modeling, a price-dependent linear demand function, and backward induction. We find that, the introduction of downstream Cournot duopoly competition leads to lower profits for both the manufacturer and retailer. This holds, whether the number of selling season is two or three. Consumer Surplus is also uniformly lower under retailer competition, compared to a downstream monopoly supply chain. When we try to deduce the effect of SI carriage under Cournot duopoly competition, by comparing an SC with Cournot duopoly competition and SI allowed between periods, to a similar SC with a Cournot duopoly downstream and a static, repeating, one-shot game in each period, with no SI carried – we find again that manufacturer and retailer profits are both lower when SI carriage is allowed. This holds whether the number of selling seasons is two or three. Consumer Surplus is also lower uniformly over both two and three selling seasons. Under a Commitment contract, over two selling seasons, the manufacturer ends up with an advantage, making a higher profit with downstream retailer competition, than compared to supplying to a monopoly downstream under the same contract. The retailers, while competing as a Cournot duopoly, are not able to use the relative advantage that comes from a Commitment contract to make a higher profit, as they are, when the downstream is a single retailer monopoly. The consumer also is disadvantaged by the introduction of downstream Cournot competition under a Commitment contract. When we compare a manufacturer supplying to a Cournot duopoly downstream of retailers, with, and without a Commitment contract (dynamic ordering), we see that the manufacturer and consumer benefit under a Commitment contract, making higher profits, but the retailer is at a disadvantage. It would be an interesting extension of this work to generalize the results from two and three selling seasons, presented here, to the “n” period case. It would also be benefi-cial to run empirical studies in real-world supply chains to validate if and to what extent the insights developed by this kind of game-theoretic modeling hold in a real-world supply chain setting. Development of contracts that are more effective than a Commitment con-tract in coordinating this supply chain would be another possible area for further research

Cooperation between two suppliers and a common retailer

Over past few years, supply chain coordination has been widely studied and numerous practitioners and researchers proposed many models on this field. Although many previous studies addressed channel competition considering a scenario with an exclusive retailer with only one producer’s brand, in real world the retailers sell various products with different brands. This study was to analyze the relation between two suppliers and a common retailer by taking various degree of product sustainability into account. The market is considered to be duopoly. This thesis describes modifying and implementation of a supply chain coordinator tool in order to enhance the profit earned by any of the parties involved in this supply chain. In this thesis we present a cooperation and collaboration model in a supply chain consisting of two suppliers with a common retailer. We establish the conditions for cooperation in such scenario with popular supply chain contracts. Even though other methods have been reviewed under various scenarios, we confine our interest to apply a coordinating contract and analyse the results. The type of the contract that can coordinate the supply chain is debatable and it needs to be analyzed depending on the limitations. The methodological approach taken in this study is modifying a contract in order to coordinate the supply chain and leads to better off for all parties. First we consider the classical model then the whole sale price contract is applied. Later in order to enable the supply chain coordination, facility sharing contract and franchise contract have been modified and implemented. Finally by illustrating the results of implementing each contract, a framework is presented. In this study the linear demand function is used because of tractability in providing analytical results while in real case the nonlinear demand function is widely used

Parallel importation in a supply Chain:The impact of gray market structure

With the rapid development of global economic integration, the size of gray markets continues to expand. The purpose of this paper is to analyse the impact of different structures of gray markets on supply chain decisions and profits. Using game theory, we comprehensively analyze pricing and quantity decisions under monopoly parallel importation (either third-party parallel importation or retailer parallel importation), and duopoly parallel importation, including three different structures in which the retailer and the third-party parallel importation coexist in gray markets with different power structures. We obtain equilibrium results for each structure, compare the optimal strategies of these structures, and develop valuable insights

Vertical foreclosure: a policy framework

Whenever you phone your mother, switch on the light, or buy health insurance you purchase a service or product from a chain of vertically related industries. Providers of these products or services need access to a telecommunications network, an electricity network or to health care services. In such industries, integration and exclusive contracts between vertically related firms may have important welfare enhancing effects, but can also deny or limit rivals' access to input or customers, leading to foreclosure. Foreclosure can harm welfare if it reduces competition. This document provides policymakers with a framework to assess the potential for welfare reducing foreclosure of vertical integration and vertical restraints and describes possible remedies. The framework consists of four steps. Each step requires its own detailed analysis. First, market power should exist either upstream or downstream. Second, a theory of foreclosure should be formulated that explains why foreclosure is a profitable equilibrium strategy. Third, the existence and magnitude of potential welfare enhancing effects of the vertical restrains or vertical integration should be assessed. Fourth, suitable policies to address foreclosure should be found.

Distribution channel strategies in a mixed market

This paper studies equilibrium channel strategies in a mixed market with a public firm and a private firm. The public firm is concerned with social welfare, while the private firm aims to maximize its own profit. Each firm decides whether to adopt an integrated or a decentralized channel. We examine two standard market competition modes, Bertrand and Cournot. Within each competition mode, we consider two typical vertical contracts, wholesale-price and two-part tariff contracts. Our results suggest that equilibrium channel structures depend on the market competition mode, the vertical contract form, and the level of product substitutability. Specifically, the channel strategy of the private firm depends mainly on the vertical contract form: under a two-part tariff contract, the private firm always chooses decentralization; under a wholesale-price contract, the private firm chooses integration for most scenarios except for highly substitutable products under Bertrand competition (i.e., under very intense competition). The channel strategy of the public firm depends mainly on the competition mode: under Bertrand competition, the public firm always chooses decentralization; under Cournot competition, the public firm always chooses the opposite of the private firm׳s strategy

Cross-Sale In Integrated Supply Chain System

In this article, we study two manufacturers, each producing a single substituting product, selling the products through their own centralized distribution channels, and also using each other’s distribution channel at their choice. Distribution channels are also substitutable. Using price competition and a game theoretic approach, we find that the same products can be sold at a higher price in the cross-sale channel than in its own centralized distribution channel.  The first mover in doing a cross-sale doesn’t necessarily enjoy the advantage in terms of higher profit.  Not only manufacturers can charge higher prices for their own and cross-sold product from their competitor, but also cross-sale increases the profits of both manufacturers; and most importantly, cross-sale improves the system’s profit dramatically

Effect of Electronic Secondary Markets on the Supply Chain

We present a model to investigate the competitive implications of electronic secondary markets that promote concurrent selling of new and used goods on a supply chain. In secondary markets where suppliers cannot directly utilize used goods for practicing intertemporal price discrimination and where transaction costs of resales is negligible, the threat of cannibalization of new goods by used goods become significant. We examine conditions under which it is optimal for suppliers to operate in such markets, explaining why these markets may not always be detrimental for them. Intuitively, secondary markets provide an active outlet for some highvaluation consumers to sell their used goods. The potential for such resales lead to an 05 ghose.pmd 91 8/26/2005, 1:10 PM 92 GHOSE, TELANG, AND KRISHNAN increase in consumersâ valuation for a new good, leading them to buy an additional new good. Given sufficient heterogeneity in consumerâ s affinity across multiple suppliersâ products, the â market expansion effectâ accruing from consumersâ cross-product purchase affinity can mitigate the losses incurred by suppliers from the direct â cannibalization effect.â We also highlight the strategic role that used goods commission set by the retailer plays in determining profits for suppliers. We conclude the paper by empirically testing some implications of our model using a unique data set from the online book industry, which has a flourishing secondary market.NYU, Stern School of Business, IOMS Department, Center for Digital Economy Researc