Abstract:

With the increased development of the Internet and e-commerce， manufacturer encroachment has become more popular， yet few literature focuses on the interaction of power structure and pricing timing decisions on manufacturer encroachment. Three power structures are considered， namely， MS power structure （i.e.， Manufacturer -Stackelberg game）， RS power structure （i.e.， Retailer-Stackelberg game） and VN power structure （i.e.， Vertical-Nash game）. And supply chain members have three pricing timing strategies （the manufacturer decides the direct channel’s retail price earlier than/simultaneously with/ later than the retailer determines the retail channel’s retail price）. Further， the profit models of supply chain members considering three power structures and three pricing timing strategies under two scenarios of encroachment and non-encroachment are constructed respectively. By using backward induction， the optimal price and revenue of supply chain members are solved， and further， the equilibrium pricing timing strategy of supply chain members and the optimal encroachment decision of the manufacturer can be obtained. It is found that under the MS or VN structure， the optimal pricing timing strategies of supply chain members are always in conflict， but Pareto improvement can achieve the equilibrium pricing timing strategy； under the MS （VN） structure， the manufacturer should decide the retail price simultaneously with （earlier than or simultaneously with） the retailer. However， under the RS structure， the optimal pricing timing strategies of members are always consistent and all three pricing timing strategies are the optimal strategy. In addition， encroachment is not always detrimental to the retailer. When the basic market demand of direct channels is small， encroachment is beneficial to the retailer. The reason is that with price competition， encroachment triggers a negative wholesale price effect and a positive channel competition effect， which makes the encroachment has a positive and negative impact on the retailer respectively. Surprisingly， a larger market power does not always provide members with greater advantages. With the increase of basic market demand for the direct channel， the manufacturer is increasingly willing to encroach under the RS structure， while the retailer gains higher profit with encroachment under the MS structure.

Key words: manufacturer encroachment, pricing timing, power structure, Pareto improvement