PRICING AND WARRANTY PERIOD DECISIONS FOR SUBSTITUTABLE PRODUCTS UNDER COOPERATIVE AND NON-COOPERATIVE STRATEGIES

In today's market, price is considered as a determining factor for a company's survival and productivity. Manufacturers and retailers try to lure customers and increase sales by cutting prices. In addition to the price factor, also many companies try to form a reliable brand, with the aim of improving services, warranty and enhancing the quality. In this paper, pricing decisions for two substitutable products in a supply chain with a common retailer and two competitive manufacturers are considered. Orders of the common retailer are two substitutable products from the two manufacturers who sell their products with warranty in the market. Moreover, product warranty affects the retailer's orders such that lower product price and longer warranty period, will encourage the retailer to buy more goods. The retailer sets the market price and the two manufacturers set the wholesale prices for the retailer. Manufacturers must price their products based on their cost structure, and react to effort of competitors to earn a maximum profit. In addition, the pricing strategy of manufacturers should never be a pointless price war, but rational corrective measures taken under competitive circumstances. The aim of this paper is to analyze the effects of different competitive strategies, different power structures of channel members, and the effects of a warranty period on desired pricing decisions. For this purpose, five decentralized games such as cooperation/non-cooperation of manufacturers with different powers, Nash and Stackelberg games are created. Different forms of balanced decision-making are identified. Through comparison and systematic analysis, some of interesting and valuable management insights along with the effects of different decision-making strategies on manufacturers and market power are studied in various models. We find out that, by being the leader, retailer earns higher profits. Also, all members of the network, particularly consumers, are looking for lower retail prices, longer warranty period and greater profits. Therefore, cooperation of the manufacturers is required.