Managing a retail-competition distribution channel with incentive policies

In reality, the multi-retailer channel of distribution has occurred in many industries, such as electronics, appliances, and apparel. The practice of the supplier providing incentives to retailers to promote sales is also quite prevalent in today’s business. This paper considers a two-retailer supply chain in which the supplier provides a cash discount to a specific retailer (a senior company owning more market share and having less pressure on the utilization of capital investment) and a credit period to another (a junior company owning less market share and having more pressure on the utilization of capital investment). The end demand for each channel has a substitute effect in terms of retail prices. The research problem originates from operations of dual-retailer channels in the automotive parts and accessories industry. The objective of the supplier is to determine the cash discount and credit period to maximize his profit. Both retailers determine pricing and ordering policies to maximize profits. This paper applies a Supplier Stackelberg framework to obtain equilibrium solutions for every entity. Numerical analysis is conducted to discuss the influence retailer competition has on the decision behaviors of the supplier and retailers.