The Contract Design Under Competitive Supply Chain When The Manufacturer Providers The Extended Warranty

With the increasing competition in the product market,the profit margin of product is decreasing.To keep the sustained growth,the value-added service based on the durable goods are seen as the new engine of growth.Among the value-added services,the extended warranty is popular since it can improve the utility of consumers and manufacturers at the same time.On the other hand,the horizontal competition between retailers or between supply chains is common in the autos and home appliances markets which are the main markets of extended warranties.This paper applies game theory to study the pricing equilibrium and coordinating mechanism design when the retailers compete or the supply chains compete under the setting that the manufacturer provides the extended warranties.The theoretical research in this paper in the supply chain with extended warranties and horizontal competition will supplement the existing supply chain theory and provide insightful guidance for management of extended warranty sales.First,this paper establishes the supply chain model with one manufacturer and two competing retailers,where the manufacturer provides the extended warranties directly to the consumers.We compare the equilibrium product price,extended warranty price,the profit of manufacturer and retailers,and total supply chain profit under the centralized model and decentralized model.And we further discuss the impact of competition intensify and extended warranty length on the equilibrium prices and profits above.Next,based on the analysis of the difference between the centralized and decentralized model,we applied three sophisticated contracts,revenue sharing contract,quantity discount contract and two part tariff contract,to discuss the coordination mechanism.We further discuss the impact of competition intensify and extended warranty length on the coordination mechanism.Finally,we discuss the contract choice problem in competing supply chains where the manufacture provides the extended warranty.We compare three scenarios,both supply chains choosing wholesale price contract,both supply chains choosing two-part tariff contract,each supply chain choosing one kind of contract respectively,and then discuss the contract choice equilibrium from the perspective of Pareto improvement in the total profits of the supply chain and from the perspective of Pareto improvement in both manufacturers’ and retailers’ profits.