Research on Manufacturer’s Price and Service Strategy Under Gray Market Considering Government Supervision

Xin Yin
Chongqing University, China

Bin Dan
Chongqing University, China

Haiyue Zhang
Chongqing University, China

This paper considers a supply chain system consisting of a manufacturer with her authorized retailers, an unauthorized intermediary and the regional government. Aim at the problem of the manufacturer’s price decision and service strategy in two markets under gray market, the demand function influenced by the consumer acceptance of gray goods and the manufacturer and the unauthorized intermediary’s profit model are established. By analyzing and discussing the effects of government supervision on manufacturer’s pricing decision and service strategy, this paper proposes the manufacturer’s optimal price and service strategy. The results show that if the government increases supervision the manufacturer will benefit while products demand and profits of the unauthorized intermediary will decrease. Thus, the government will achieve the target of combating gray market transaction. Besides, the manufacturer’s service level when the government does not provide any protection against the gray market is as same as the level when the government provides complete protection. The service level will be higher when the government provides incomplete protection. Furthermore the results are examined by numerical examples.

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