Study On The Extended Warranty Pricing Strategy Considering The Competition And Coordination In A Duopoly Supply Chain

Extended warranty has been an increasing strategy for selling these years. Because of the fierce competition in market, companies can’t keep a foothold only by depending on reducing products’ price. And the final objective of companies is to maximize their profit. Extended warranty can make more profit for enterprises; what’s more, it can be an effective way for helping companies to be outstanding among fierce competition. But there are few articles for the competition of extended warranty now. This paper bases on this point, modeling for two retailers competing of price and extended warranty strategy.This article analyzes the coordination and competition issues in a two-stage distribution channel where two different retailers compete on their retail price and extended warranty policy to sell two substitute products in the same market. The demand faced by each retailer not only depends on its own price, extended warranty price and duration, but also on the price and warranty policy set by the other. Mathematical models have been developed to analyze the dynamic competition and coordination mechanism for four different cases where retailers compete:(1) exclusively on price; (2) exclusively on extended warranty policy; (3) both price and extended warranty price. What’s more, it proves that when in the context of the joint of the product market and extended warranty market, the profit of company from product sales is less, while the profits from extended warranty sales and total profits s more.The mathematical models show that under price/extended warranty competition, the steady state equilibrium is dynamically stable in nature under certain conditions. Further, it has been shown that the channel profit for each case is higher under coordination than that of under competition and the maximum channel profit is achieved when retailers coordinate each other to adopt a centralized policy to set both price and warranty price. However, it has been observed that though coordination enhances overall supply-chain profitability, it may make consumers worse-off due to higher product prices and less extended warranty service. The model is illustrated with suitable numerical examples.