On price and service competition with substitutable goods

This research studies a case that two enterprises produce two different but substitutable goods. The consumer demand depends on two kinds of factors: prices and service levels of the product and substitutable product. This article is based on three scenarios: Nash Equilibrium, Enterprise Alliance and Stackelberg. Game-theoretic framework is applied to find the optimal solutions for every participant. This research has conclusions as follow. Firstly, if market base of one product increases or one product has some economic advantage in providing service, it benefits for itself but is bad for substitutable product. Secondly, enterprises will provide fewer services, gain fewer customers, but earn more profit in Enterprise Alliance than in Nash Equilibrium. Thirdly, when one enterprise is dominant, if substitutable goods influence its demand greatly, it will take the advantage to earn more profit; otherwise, it will give up the advantage to seek the Enterprise Alliance.