Optimal Pricing and Product Differentiation Strategy under Different Price Leadership

Abstract

Abstract:

This paper discusses a supply chain composed of a manufacturer and a retailer, where the retailer is supplied by the manufacturer with products of differentiated quality, namely high-quality products and low quality products. According to the price leadership differences, and considering the product differentiation, there types of models are constructed in this paper, which are two Stackelberg game models dominated by the manufacturer and retailer respectively and the Nash game model. By the solutions, we derive, for each supply chain participant, the optimal profit of system, and the equilibrium pricing, demands, profits, consumer surplus under each power structure. We find that the differentiation strategy of product will increase the profit of manufacturer, and supply chain participants’ price leadership leads to higher profit. The imbalanced price leadership between the manufacturer and the retailer hurts the profits of the system and consumer surplus. On the basis, we use a number of examples to compare the supply chain participants’ profit and the supply chain’s total profits under different power structures.

Key words: different price leadership, product differentiation, pricing, consumer surplus

Jin Liang, Huang Xiangmin. Optimal Pricing and Product Differentiation Strategy under Different Price Leadership[J]. , 2020, 32(5): 205-216.

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