Purchasing choices and channel structure strategies for a two-echelon system with risk-averse players

Tiaojun Xiao, Tsan Ming Choi

Research output: Journal article publicationJournal articleAcademic researchpeer-review

53 Citations (Scopus)


We develop a dynamic game theoretic model of a two-echelon system consisting of two manufacturers and two retailers, where all players are risk averse. Each manufacturer has two pure channel strategies, namely the integrated channel (I) and the retailing channel (R). We mainly focus on how the channel structure strategies and wholesale prices of the manufacturers depend on the risk sensitivity, the pricing power and the purchasing option of the retailer. We derive the optimal decisions for each player and find that: a higher substitutability of the two products implies a stronger manufacturer's motivation to use retailing channel to act against the retailing channel. We further identify the effects of the retailer's risk sensitivity on the wholesale prices which depend on the channel structure. If the total net price cap for the leader retailer is sufficiently large relative to the follower retailer, then the purchasing option of the retailer affects the supply chain's channel structure significantly.
Original languageEnglish
Pages (from-to)54-65
Number of pages12
JournalInternational Journal of Production Economics
Issue number1
Publication statusPublished - 1 Jul 2009


  • Channel structure
  • Game theory
  • Purchasing choice
  • Supply chain management

ASJC Scopus subject areas

  • General Business,Management and Accounting
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering


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