Channel coordination with extended warranty when retailers compete

Abstract

This paper studies coordination mechanisms for the supply chain with one manufacturer and two competing retailers, where the manufacturer directly sells the extended warranty service to the consumers. We find that the efficiency of the wholesale contract increases with retail competition, whereas it decreases with the extended warranty duration. For the symmetric competing retailers, a set of quantity discount contracts have been designed to coordinate channel with Pareto improvement. Especially, when retail competition approaches infinity, the quantity discount contract to coordinate the channel will degenerate into a simple wholesale contract. For the asymmetric competing retailers, three sets of contract structures have been identified, under which the complicated quantity discount contract combined with a two-part tariff or slotting allowance can achieve channel coordination with Pareto improvement of tripartite. The results are remarkably different from the symmetric retailer scenario.

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