Free or bundled: Channel selection decisions under different power structures

Xu Chen; Xiaojun Wang

doi:10.1016/j.omega.2014.11.008

Free or bundled: Channel selection decisions under different power structures

Xu Chen, Xiaojun Wang

Management

Research output: Contribution to journal › Article › peer-review

123 Citations (Scopus)

Abstract

The smart phone industry has unique supply chain relationships. Companies at all levels of the supply chain compete and coordinate with each other for market share and profit. This paper examines the impact of power structures on the decision of pricing and channel selection between a free channel and a bundled channel. We investigate the smart phone supply chain that consists of a handset manufacturer and a telecom service operator. Based on game theory models, the manufacturer's optimal retail pricing policies in free and bundled channels and the telecom service operator's optimal subsidy policies in a bundled channel are derived under different power structures. It is demonstrated that the firm that has higher channel power will gain more profit, and the smart phone supply chain's profit in a Vertical Nash (VN) power structure is higher than that in Telecom Service Operator-Stackelberg (TS) and Manufacturer-Stackelberg (MS) power structures. It is also shown that the smart phone supply chain will choose a bundled channel in TS and MS power structures under certain conditions and will select a free channel in a VN power structure.

Original language	English
Pages (from-to)	11-20
Number of pages	10
Journal	Omega (United Kingdom)
Volume	53
DOIs	https://doi.org/10.1016/j.omega.2014.11.008
Publication status	Published - 1 Jun 2015

Bibliographical note

Funding Information:
The authors would like to thank the anonymous referees and the editor for their constructive comments on an earlier version of the paper. The authors are supported by the Royal Society International Exchanges cost share scheme (Ref. IE131228 ) with the National Natural Science Foundation of China (No. 71411130137 ). The first author is also partially supported by the National Natural Science Foundation of China (Nos. 71272128 and 71432003 ), Program for New Century Excellent Talents in University (No. NCET-12-0087 ), Specialized Research Fund for the Doctoral Program of Higher Education (No. 20130185110006 ), and Youth Foundation for Humanities and Social Sciences of Ministry of Education of the People׳s Republic of China (No. 11YJC630022 ).

Publisher Copyright:
© 2014 Elsevier Ltd.

Keywords

Channel selection
Game theory
Power structure
Pricing
Service operations

ASJC Scopus subject areas

Strategy and Management
Management Science and Operations Research
Information Systems and Management

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10.1016/j.omega.2014.11.008

Cite this

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title = "Free or bundled: Channel selection decisions under different power structures",

abstract = "The smart phone industry has unique supply chain relationships. Companies at all levels of the supply chain compete and coordinate with each other for market share and profit. This paper examines the impact of power structures on the decision of pricing and channel selection between a free channel and a bundled channel. We investigate the smart phone supply chain that consists of a handset manufacturer and a telecom service operator. Based on game theory models, the manufacturer's optimal retail pricing policies in free and bundled channels and the telecom service operator's optimal subsidy policies in a bundled channel are derived under different power structures. It is demonstrated that the firm that has higher channel power will gain more profit, and the smart phone supply chain's profit in a Vertical Nash (VN) power structure is higher than that in Telecom Service Operator-Stackelberg (TS) and Manufacturer-Stackelberg (MS) power structures. It is also shown that the smart phone supply chain will choose a bundled channel in TS and MS power structures under certain conditions and will select a free channel in a VN power structure.",

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Free or bundled: Channel selection decisions under different power structures

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

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