A Research into How Manufacturers Decide the Quality of Their Products in the Distribution Channels of Supply Chain when They have Invested in Innovation

Abstract

Abstract:

Based on four-stage stackelberg leader-follower dynamic game analysis, this paper studies how manufacturers decide, in a decentralized way and a centralized way respectively, the quality of their products when they have invested in innovation, and then, analyzes how their innovation investment strategy influences their product quality, direct sale price, retail price, market demand, expected profits and the final customer's consumer surplus in three types of distribution channels (internet direct channel, traditional retailing channel and mixed channel). Through the model analysis, our paper can demonstrate that:as their innovation investing grows, manufacturers' product quality and expected profits will increase; manufacturers' innovation investment in traditional retailing channel will be lower than in internet direct channel and then will be lower than in mixed channel; when the two types of distribution channel share the market demand, the quality of manufacturers' products in mixed channel will be higher than in internet direct channel and then will be higher than in traditional retailing channel; final customer's consumer surplus in internet direct channel will be higher than in traditional retailing channel and then will be higher than in mixed channel. Finally, we provide a numerical example, which indicates where the model can be further applied in practice.

Key words: decentralized decision, centralized decision, innovation investment, product quality, mixed distribution channel

Zhu Lilong, Sun Shuhui. A Research into How Manufacturers Decide the Quality of Their Products in the Distribution Channels of Supply Chain when They have Invested in Innovation[J]. , 2019, 31(5): 231-241.

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