Price Competition Between A Dual-channel Retailer And A Pure Online Retailer

The rapid development of e-commerce makes online shopping be an important way for consumers to purchase goods. The traditional retailers are facing the loss of customers and profits. Based on the price war between "Suning" and "Jingdong" in2012, the price competition between a dual-channel retailer and a pure online retailer was focused on in this paper and the uniform pricing strategy was adopted by the dual-channel retailer to avoid channel conflicts. A linear demand model which contained the substitution effect was adopted to characterize the competition between different channels and a non-cooperative game model was built.Firstly, on basis of the decision-making framework, the model was solved and the general form of pricing equilibrium was given. Meanwhile, the properties and general competition of equilibrium were analyzed. The analysis indicates that the price of retailer is affected by its own costs as well as the rival costs and both retailers" prices will be improved no matter either retailer’s costs increase; Both retailers" prices will be improved when the traditional or online scale increases; The competition is influenced greatly by the dual-channel retailer’s online market proportion; The chance of price competition is greater when the two retailers" power is close.Secondly, the equilibrium solution was simplified and the pricing strategies of retailers were analyzed when the two retailers have the same potential online market size. The research indicates:When the potential traditional market size is much smaller, the dual-channel retailer’s pricing space and revenue is limited by it. With the increasing of the potential traditional market size, this restriction becomes weaker. When the traditional market size is roughly equal to the online market, the advantages of dual-channel retailer gradually shows up, and the pure online retailer’s price and revenue are gradually exceeded by the dual-channel retailer. However, when the traditional market size is much larger than the online market, the dual-channel retailer’s pricing space is limited by the online market size. At this time, it’s better for the dual-channel retailer to give up the online market.Thirdly, the pricing strategies of retailers were analyzed when the two retailers have same total potential market size. The analysis indicates:In this situation, the dual-channel retailer’s price and revenue are lower than the pure online retailer. Further analysis finds that the dual-channel retailer’s low price is caused by its high price elasticity. On the one hand, this explains why "Suning" dares to set its price lower than "Jingdong"; On the other hand, an idea is provided for the dual-channel retailer to change its retailing model, i.e., its main sales channel should be gradually shifted from offline to the online, and the traditional channel will be a complementary channel of online channel to meet all kinds of demands of online market.Lastly, when the market size wasn’t limited, analysis finds the dual-channel retailer’s channel selection is affected directly by the pure online retailer’s price; With changing of the pure online retailer’s price, the dual-channel retailer appears three possible channel selection behaviors.