Optimal bargaining timing of a wholesale price for a manufacturer with a retailer in a dual-channel supply chain

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Abstract

This paper explores the optimal timing of when a manufacturer should bargain a wholesale price with a retailer in a dual-channel supply chain that consists of the manufacturer and the retailer. To address the problem, we construct a game-theoretic model in which the manufacturer can sell products directly to consumers (direct channel) and through the retailer (retail channel). We also assume that the manufacturer determines the direct price in the direct channel and the retailer determines the retail price in the retail channel, while the manufacturer and the retailer bargain the wholesale price. The analytical solution of our model yields the following clear-cut result: the manufacturer achieves its highest profit by bargaining the wholesale price earlier than determining the direct price. Moreover, we show that this result holds even if the control variables determined by the two supply chain members at the retail market level are not prices but quantities, proving the robustness of the result. Consequently, the result provides the managerial implication usable for practical decision-making that if a manufacturer using a dual-channel supply chain can choose the timing to negotiate the wholesale price with a retailer, the manufacturer should have the opportunity before determining the direct price or the quantity of products sold directly to consumers.

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