Price and channel structure strategy for a supplier-stackelberg supply chain

This paper investigates supplier’s decision on whether to open an exclusive store in addition to franchised retail stores in the dual channel supply chain. We build a market structure of one supplier and N retailers based on Salop spatial model, in which the supplier acts as a Stackelberg leader. We explore how supplier’s channel decision interact with pricing decisions of both franchised retailers and supplier, as well as their optimal profit. Our analytical results show that the introduction of exclusive store will increase supplier’s profit without affecting franchised retailer’s profit when wholesale price is endogenous.