Supply chain vertical competition and product proliferation under different power structures

Emerging mega retail stores, mergers and acquisitions, and horizontal alliances have redefined the power structure of the supply chain, which used to be manufacturer-dominated. To assess the impacts of power redistribution, in this paper, we revisit the pricing and assortment decisions in a supply chain under different power structures. We characterize the Stackelberg and Nash equilibria for pricing and assortment games in various scenarios and propose a revenue-sharing scheme to achieve coordination. Our results reveal that the presence of exploitative abuse, product proliferation, and cooperation sustainability all depend on the relationship between two key factors: cost sensitivity to market expansion and the retailer’s relative advantage in operational costs. Furthermore, the revenue-sharing contract cannot reduce product proliferation. Companies can use private information related to products, markets, operational costs, and power structures to position themselves. Powerful retailers need to be cautious since abuse of power might yield less profit. The weaker party can propose revenue-sharing or trust-based cooperation depending on its sustainability.