When should a manufacturer set its direct price and wholesale price in dual-channel supply chains?

- Now that manufacturers increasingly manage both a retail channel and a direct channel, the question arises of when to post prices and what those prices should be.
- The manufacturer should post the direct price before or upon selling products wholesale, and simultaneous price competition between a manufacturer and a retailer should never arise.
- These results follow from applying the idea of an observable delay game.

Applying an observable delay game framework developed in noncooperative game theory, we investigate the timing problem concerning when a manufacturer managing dual-channel supply chains, consisting of a retail channel and a direct channel, should post its wholesale price and direct price. Conventionally, operational research models describing dual-channel supply chains examine price competition, where the retailer and the manufacturer simultaneously determine the retail and direct prices, respectively. In contrast to this conventional setting, our model demonstrates that such simultaneous price competition never arises if the manufacturer and retailer can choose not only the level of the price but also the timing of pricing. If the manufacturer sets the direct price after setting the wholesale price to the retailer, the retailer accelerates the timing of retail pricing prior to the direct price setting by the manufacturer. Our findings suggest that the manufacturer should post the direct price before or upon, but not after, setting the wholesale price for the retailer. This upfront posting of the direct price not only constitutes the subgame perfect Nash equilibrium of the noncooperative game between channel members but also maximizes the profits for a manufacturer employing multichannel sales strategies.