Manufacturer Rebate Competition in a Supply Chain with a Common Retailer

Abstract

W e consider manufacturer rebate competition in a supply chain with two competing manufacturers selling to a common retailer. We fully characterize the manufacturers' equilibrium rebate decisions and show how they depend on parameters such as the fixed cost of a rebate program, market size, the redemption rate of rebate, the proportion of rebate-sensitive consumers in the market and competition intensity. Interestingly, more intense competition induces a manufacturer to lower rebate value or stop offering rebate entirely. Without rebate, it is known that more intense competition hurts the manufacturers and benefits the retailer. With rebate, however, more intense competition could benefit the manufacturers and hurt the retailer. We find similar counterintuitive results when there is a change in some other parameters. We also consider the case when the retailer subsidizes the manufacturers sequentially to offer rebate programs. We fully characterize the retailer's optimal subsidy strategy, and show that subsidy always benefits the retailer but may benefit or hurt the manufacturers. When the retailer wants to induce both manufacturers to offer rebate, he always prefers to subsidize the manufacturer with a higher fixed cost first. Sometimes the other manufacturer will then voluntarily offer rebate even without subsidy.

Game Theoretical Perspectives on Pricing Decisions in Asymmetric Competing Supply Chains

“…Unlike the previous study of asymmetric price leadership scenario in monopoly common retailer channel [3,9], we examine a dual exclusive channel system with and without horizontal Stackelberg competition, where each manufacturer distributes its goods through a single exclusive retailer but two goods are substitute. Moreover, we employ a linear demand based on the utility function of a representative consumer, which has been widely utilized in economics, marketing, and other related literatures [33,45,46]. Our analysis is based on game theory models and reveals several interesting observations and implications by comparing the different subgames.…”

Rebate Decisions and Leadership Strategy in Competing Supply Chain with Heterogeneous Consumers

“…In the latest literature, Huang et al [18] suggested that rebate competition among manufacturers or retailers can be studied for future research. Ha et al [19] are the first to consider a multistage game, including two manufacturers selling substitutable products through a common a retailer with slippage effect. Our study is the most close to theirs.…”

“…The rebate-sensitive consumers incur a lower redemption cost , and the rebateinsensitive consumers incur a higher redemption cost for the complexity of the redemption steps or their higher cost of time, where 0 ≤ < . We derive the demand functions by following the similar approach from Ha et al [19], which is also developed from Zhang et al [27] and Chung [30]. The utility function of a representative consumer is given by…”

“…Without loss of generality, we assume ≤ . We use the same approach by Ha et al [19] to institute a normal game with the manufacturers as game players, and a payoff matrix shown in Table 2. Similarly, we presume that a manufacturer will offer a rebate if she is neutral.…”

A Joint Optimal Model of Pricing, Rebate Value, and Redemption Hassle

“…The popularity of rebates is largely attributable to the seller's ability to price discrimination between consumers with a high and low willingness to pay for a product (Narasimhan, ; Gerstner & Hess, ; Chen, Moorthy, & Zhang, ; Ha, Shang, & Wang, ) . That is, they target only low‐valuation consumers with rebates and charge a higher retail price to high‐valuation consumers.…”