Pricing decisions in a carrier–retailer channel under price-sensitive demand and contract-carriage with common-carriage option

We study a carrier–retailer channel and examine the profitability of the centralized and decentralized channels under price-sensitive demand. In the centralized channel, the problem is to set the retail price that maximizes the total channel profit, whereas in the decentralized channel the individual channel members set their own pricing policy parameters to maximize individual profits in a Stackelberg game. We show that a linear price contract between the carrier and the retailer could lead to channel coordination through a win–win solution. We also show that it is profitable for the retailer to exploit common-carriage complementary to the use of contract carriage.

► The problem of interest in this paper is motivated by transportation pricing in a carrier–retailer setting. ► We model the underlying pricing problem using game theory. ► We develop formal results for achieving channel coordination (CC) and investigate the efficiency of CC and its potential.