Unilateral Pricing Policy in Multichannel Setting: An Analytical Approach

Posted: 2 Sep 2014

See all articles by S.P. Raj

S.P. Raj

Syracuse University - Whitman School of Management

Byong Rhee

Ajou University - Department of Business Administration

K. Sivakumar

Lehigh University

Date Written: July 10, 2014

Abstract

The use of unilateral pricing policy (UPP), in which the manufacturer sets the common retail price for all retailers, is increasingly popular in the United States as a result of recent legal developments. This paper develops an analytical framework to model UPP in multichannel markets. The objective is to model optimal UPP by a manufacturer and subsequent determination of optimal in-store service by the offline retailer. The paper also examines conditions under which UPP benefits the manufacturer, offline and online retailers compared to the conventional pricing mechanism in which the manufacturer sets the wholesale price and retailers then set their retail prices independently. The model considers the extent of "showrooming" (visiting an offline retailer but buying from an online competitor) that occurs among customers and their sensitivity to in-store services provided by the offline retailer. The key results from the analytical framework are: (1) When showrooming tendency is high among customers and when the customers are sensitive to in-store service provided by the offline retailer, both offline and online retailers benefit from UPP; (2) however, the manufacturer is not better off under UPP relative to conventional pricing policies.

Keywords: Unilateral pricing policy, multiple channels, showrooming, in-store service sensitivity

JEL Classification: M31

Suggested Citation

Raj, Sevilimedu P. and Rhee, Byong-Duk and Sivakumar, K., Unilateral Pricing Policy in Multichannel Setting: An Analytical Approach (July 10, 2014). Available at SSRN: https://ssrn.com/abstract=2490399

Sevilimedu P. Raj (Contact Author)

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

Byong-Duk Rhee

Ajou University - Department of Business Administration ( email )

206 Worldcup-ro
Yeongtong-gu
Suwon, 443-749
Korea, Republic of (South Korea)

K. Sivakumar

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States

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