Dynamic game analysis on pricing and service strategy in a retailer-led supply chain with risk attitudes and free-ride effect

Abstract

Purpose

The convenience of online shopping enables the manufacturer to develop direct channels. To counter manufacturer encroachment, the retailer tends to provide presale service to attract more customers. Meanwhile, the service provided by the retailer also has a positive impact on the manufacturer's sale volume, which is usually called the showrooming effect or free-ride. The purpose of this paper is to explore the dynamic game of pricing and service strategy in a dual-channel supply chain with risk attitudes and free-ride.

Design/methodology/approach

This paper considers the risk attitude, characterized by mean-variance theory. First, the optimal pricing and service strategy of two static models under two scenarios are derived. Second, dynamic games are then considered to explore the evolution of the decisions. The classical optimization method is used to solve the problem, and numerical experiments are done to analyze the complex characteristic of the system.

Findings

The result shows that the retailer is willing to provide a higher level of service if his risk preference is higher. The offline retail price and online retail price are positively related to the retailer's risk preference. Besides, the free-ride behavior can reduce the offline retail price and the level of service provided by the retailer. Furthermore, the study indicates that the system is more likely to enter chaos if the retailer's risk preference is higher. Additionally, consumers' service sensitivity and cost coefficient affect the stability of the system.

Originality/value

The study provides a different perspective on supply chain management considering risk attitudes and free-ride The findings of the study can offer theoretical and practical guidance for enterprises to choose adjustment measures according to their risk preference.

Citation

Ma, J. and Hong, Y. (2022), "Dynamic game analysis on pricing and service strategy in a retailer-led supply chain with risk attitudes and free-ride effect", Kybernetes, Vol. 51 No. 3, pp. 1199-1230. https://doi.org/10.1108/K-07-2020-0459