Research On The Game Among Vertically Integrated Companies With Online And Offline Selling Channels

With the development of the economy and the increase of the market competition, more and more companies devote themselves to building their own brands, hoping that they can attract more customers with their brands which are full of enterprise characteristics. Thus, those companies conduct vertically integrated supply chains. They design and develop their own brands, and complete the procurement, the production, the distribution and the selling of the products all by themselves. What is more, the companies not only sell their products in traditional selling channels, but also develop online selling channels. They sell their products both offline and online. However, the dual-channel selling in a common company will arouse channel conflicts. How do the companies coordinate these channel conflicts to maximize their profits? In a word, the companies who conduct vertically integrated supply chains and dual-channel businesses face two challenges:On one hand, how do the companies coordinate their own offline and online selling channels well and harmoniously to reduce or avoid the adverse impact of channel conflicts. On the other hand, how do the companies maximize their profits in horizontal competition? We intend to help the companies to solve these two challenges.This paper proposes a supply chain system model containing Nash game companies that compete in a common market. Each company adopts a vertical integration strategy and runs offline and online selling channels. To maximize profits, the companies determine optimal production quantities and prices. To get the equilibrium pattern, we translate the optimization problem of our model to a variational inequality problem equivalently. Using the theory of finite-dimensional variational inequality, we prove the existence and uniqueness of the equilibrium pattern and develop a converged algorithm, that is, modified projection algorithm. Based on the algorithm, we explore a MATLAB program which can be used to solve numerical examples and get the equilibrium solutions.Numerically, we design a basic example and compute the equilibrium production quantities and prices in offline and online channels, as well as the profits of the companies. Based on the basic example, we subsequently make sensitivity analyses upon transportation cost and substitution intensity respectively. By changing transportation cost, we demonstrate that the offline price is conditionally higher than the online price. By increasing substitution intensity, we find that the equilibrium prices and profits all decrease.Every company is advised to set offline and online prices reasonably and rationally under the consideration on the operation cost of itself and its rivals. The companies can set differentiated (or uniform) offline and online prices if the total variable costs in its offline and online channels are different (or the same). Thus, customers are reminded that if they spend less money buying an online product of a company, the product they buy may be different from the offline product of the company in some aspects. In addition, we suggest that companies innovate to differentiate their products from those of their opponents and increase production efficiency. Only in this way, can they survive and gain profits in the fiercer and fiercer market competition.