Optimal pricing strategy in uncertain dual distribution channel with retail services

Abstract

Purpose

The aim of this paper is to study the optimal pricing decision in a supply chain with a dual distribution channel in a centralized and decentralized decision-making systems and investigate the economic impact of retail services on pricing behaviors with respect to the power structures.

Design/methodology/approach

To reach the equilibrium behavior of decision-makers, two-stage optimization, the Stackelberg game and the Bertrand–Nash game have been used. Also, to explore the effect of environmental uncertainty on the behavior of decision-maker, demand functions are characterized as an uncertain price dependent, service dependent and channel dependent. Decision parameters are based on experts’ belief degree, in the sense of uncertainty theory initiated by Liu (2007).

Findings

Obtained results reveal that the retail services have a strategic role in the centralized supply chain and the decentralized supply chain with dominant manufacturer, while both the supply chain and the consumer suffer from higher environmental indeterminacy.

Research limitations/implications

This study is based on possible scenarios of dual distribution system only. Further research is recommended to investigate the applicability of the authors framework in different distribution systems.

Practical implications

The study findings are believed to be valuable for supply chains and organizations about to make a strategic decision on price of their good/service.

Originality/value

The paper contributes to the scarce literature on Uncertainty Theory initiated by Liu (2007), and combination of it with Game Theory for pricing in distribution system of supply chains. The study also contributes by investigating impact of non-price competitive factor (level of service) on pricing strategy.

Citation

Farham-Nia, S. and Ghaffari-Hadigheh, A. (2021), "Optimal pricing strategy in uncertain dual distribution channel with retail services", Journal of Modelling in Management, Vol. 16 No. 3, pp. 799-824. https://doi.org/10.1108/JM2-01-2019-0020