Abstract: We study a dual-channel supply chain in which a manufacturer (he) sells the product through a retailer (she) and keeps a direct channel himself. Meanwhile, they provide extended warranty (EW) for consumers with heterougeneous quality levels. According to their strategies on whether to open the EW to the other channel, we have three senarios: no firm provides EW to the consumers purchasing products in the other channel; only the manufacturer provides EW to the consumers in the retailer; and both provide EW to all the consumers. We build a Stackelberg game model of the manufacturer and the retailer under three different open strategies of EW, and compare and analyze the pricing and profits of both sides under different strategies. Our analysis yields the following insights: if the manufacturer opens his EW, the wholesale price of products will be reduced, so this move does not always lead to a higher profit. Meanwhile, the retailer’s EW price falls. But the retail price may rise when the cost of the manufacturer providing EW is low. Thus, the retailer may also benefit from the manfuacturer’s EW open strategy. If the retailer opens her EW, the wholesale price of products will be reduced further, but the EW price is not affected. When the cost of the manufacturer providing EW is low, the manfuacturer’s EW open strategy can increase the profits of both itself and the retailer. We further conduct a numerical study to show when the manufacturer and the retailer should open their EW. Our numerical study shows that the manufacturer should do so when the cost of the manufacturer providing EW is low, or the retailer’s EW quality is low. Regardless of whether the manufacturer opens his EW, the retailer should always open her EW to all consumers.

Key words: dual-channel, extended warranty open, supply chain, Stackelberg game