Signaling cost with price guarantee window under two logistics modes: Self-supporting vs. third-party logistics

The price guarantee window (PGW), an operations management tool that mitigates the negative impact of price reductions of a technology-based product (TBP), has been little studied in the literature, whereas it has been heavily used in practice to promote early consumer purchases. We consider PGW as a cost signal versus the effect of the logistics model on PGW for the first time to develop a two-period game model in which the monopoly decides whether to choose self-supporting or third-party logistics to transport its products and whether to disclose cost information to consumers. We find that, compared with third-party logistics, self-supporting logistics extends the length of the PGW when the service cost of self-supporting logistics is low; otherwise, it shortens the length of the PGW. In equilibrium, when the first period of sales is short, it is more beneficial for the firm to choose third-party logistics; otherwise, it is more profitable to choose self-supporting logistics. Third, cost information disclosure would not necessarily shorten the PGW of a high-cost firm unless the cost difference varies significantly.