Impacts of power dynamics and gray markets on supply chains

Li, Hai; Shao, Jing; Zhu, Stuart X.

doi:10.1016/j.ijpe.2019.09.009

Cited by 16 publications

(5 citation statements)

References 125 publications

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“…Given the unstoppable prevalence of domestic bootlegging, scholars have also attempted to evaluate whether gray markets can be utilized to a manufacturer's benefit. The answers typically suggest that while the manufacturer can gain from the bulk clearance of unsold stocks, brand erosion is the critical loss which can still prevent the manufacturer to be tolerant of gray markets (Li et al, 2020). Dasu et al (2012), for instance, discuss potential strategies that could be embraced by the manufacturer to control gray market activities or exploit them.…”

Section: Literature Reviewmentioning

confidence: 99%

Impacts of gray market selling on the supply chain under product upgrade and pricing flexibility decisions

Srivastava,

Choi,

Mahajan

et al. 2023

Naval Research Logistics

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Gray markets are infamous for unauthorized diversion of authentic products at lower prices to harm the manufacturer's authorized distribution channel. Hence, manufacturers are becoming more proactive in shaping strategies that can counter gray markets. By considering the risk of unauthorized selling through gray markets, we analyze the manufacturer's strategic channel choice and product upgrade decision. We analytically explore the provision of granting flexibility to the legitimate retailer to adjust price during the selling season as a strategy to cope with gray market. We find that unauthorized selling through gray markets has a severe negative impact on the manufacturer's profitability depending on the degree of channel differentiation and product brand equity. We counter‐intuitively reveal that the overall decentralized supply chain can be better‐off, owing to higher product leakage, especially because the legitimate retailer gains an increased sales volume through product diversion to the gray market. However, the manufacturer's loss is more severe in such a decentralized supply chain. We show that the manufacturer can eliminate unauthorized sales through gray market by offering price adjustment flexibility to the retailer. Another compelling finding exhibits that the manufacturer's decision to launch an upgraded product can intensify the diversion of an existing product. However, unfair competition from the unauthorized channel cannibalizes the sales of an upgraded product, thereby making the manufacturer worse‐off. Interestingly, despite the cannibalization of upgraded product sales, the manufacturer can be better‐off in terms of overall profitability via price adjustment flexibility if both the degree of upgrade and brand equity are higher. Overall, in addition to deploying monitoring mechanisms for supervising legitimate retailers, price adjustment flexibility can reduce product diversion if the degree of upgrade is moderate and channel differentiation is higher.

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Section: Literature Reviewmentioning

confidence: 99%

Impacts of gray market selling on the supply chain under product upgrade and pricing flexibility decisions

Srivastava,

Choi,

Mahajan

et al. 2023

Naval Research Logistics

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“…Additionally, the profitability of gray markets largely depends on manufacturers' pricing decisions. Furthermore, the latest available studies [16,42,43] on multinational supply chains deterring PI neglect to capture the transaction costs involved in parallel import activities, which are essential for third-party arbitrage.…”

Section: Literature Reviewmentioning

confidence: 99%

Effects of Parallel Importation and Power Structures on Price Competition in Duopolistic Supply Chains

Rong

Chen

et al. 2021

Mathematical Problems in Engineering

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Multinational manufacturers (MNMs) achieve significant gains from product quality and reputation in entering emerging markets while facing many operational risks, such as parallel importation (PI) and market power structures. This paper focuses on a duopolistic supply chain consisting of one MNM and one local manufacturer (LM) in an emerging market with low willingness-to-pay (WTP). Within the game analytical framework, we consider different market power structures and investigate the impact of PI on the manufacturers’ price competition, and we further discuss the MNM’s countermeasures in high and low WTP markets. We find that PI does not occur when the WTP ratio is below the threshold or the transaction cost is high. Power structures significantly affect the participant’s profitability, the LM’s gains are maximized if the MNM fully dominates the market, and the MNM loses the minimum if the LM exclusively rules the market. When in codominant structure, the parallel importer achieves maximum gains while the MNM’s profits rise in the market WTP ratio interval. PI activities boost the benefits for the LM and the parallel importer, whereas increasing transaction costs diminish those effects and promote the MNM’s profitability. PI promotes or deters price competition in duopolistic supply chains depending on power structures. In addition, increasing either the level of product substitution or quality perception restrains PI and improves the LM’s earnings, but the latter expands the MNM’s losses.

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“…Indeed, as stated by Mehdikhani and Valmohammadi (2019), a strategic collaboration between supply chain members has an impact on sustainable supply chain management considering the mediating role of internal knowledge sharing and external knowledge sharing. Last but the least, supply chain managers should focus on appropriate supply chain contracts in the presence of gray markets (Srivastava and Mateen, 2020), and they should also consider the impacts of power dynamics and gray markets on supply chains (Li et al , 2020).…”

Section: Managerial Implicationsmentioning

confidence: 99%

Arbitrage in gray markets and its impact on supply chain decisions

Yao

Foropon

Wang

et al. 2020

JEIM

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PurposeThe purpose of this paper is to investigate the impacts of different gray markets’ structures on both supply chain decisions and associated profits.Design/methodology/approachWithin the context of gray markets, using game theory approach in this paper, supply chains have been considered as assets of manufacturers, distributors and speculators, within which manufacturers sell products to distinctive markets either directly or through authorized distributors, while speculators buy products from a lower price market and then sell them in a higher price market. Our study has examined different decision variables within such a framework.FindingsConsidering a situation where one manufacturer sells its products either directly in one market (Market 1) or through its authorized distributor (Market 2), due to different products prices in both markets, results have shown that, when market elasticity is less than its critical value, a speculator can sell a gray market product arbitrage in market 2, whereas when the market elasticity is greater than its critical value, a speculator can sell a gray market product arbitrage in market 1. In addition, manufacturers—as leaders of Stackelberg game—are always the most profitable stakeholders within a gray market supply chain.Practical implicationsIn this study, equilibrium results for each market have been obtained, optimal results have been compared, and accordingly, valuable insights have been developed. Such results would help managers to take better managerial decisions, as well as strategizing policies in gray markets.Originality/valueIn this paper, we have considered a gray market where both distributors and speculators exist and act as parallel channels. To the best of our knowledge, the extant literature focuses either on distributors or speculators, but never concurrently on both. In fact, the coexistence of one distributor and one speculator in a gray market will impact their own decisions, as well as both decisions and profits of other stakeholders, and hence, will exert an impact on the manufacturer side.

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Impacts of power dynamics and gray markets on supply chains

Cited by 16 publications

References 125 publications

Impacts of gray market selling on the supply chain under product upgrade and pricing flexibility decisions

Impacts of gray market selling on the supply chain under product upgrade and pricing flexibility decisions

Effects of Parallel Importation and Power Structures on Price Competition in Duopolistic Supply Chains

Arbitrage in gray markets and its impact on supply chain decisions

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