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WAL-MART AS A LEADING RETAILER IN THE SUPPLY CHAIN

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Author(s): Jin-Li Hu | Tsung-Fu Han | Fang-Tai Tseng

Journal: Australian Journal of Business and Management Research
ISSN 1839-0846

Volume: 1;
Issue: 1;
Start page: 52;
Date: 2011;
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Keywords: Supply chain | Leading retailer | Wal-Mart effect | Game theory

ABSTRACT
The Wal-Mart effect has a dramatic impact on upstream manufacturers in a supply chain. This study applies a game-theoretic approach to analyze the effects of the leading retailer in a supply chain. We propose three models relating to the interactions between upstream duopolistic manufacturers and a downstream retailer: The first model represents that both manufacturers react simultaneously and independently to the retailer‟s price decision. The second model describes both manufacturers reacting to the retailer‟s decision in a leader-follower price competitive condition. The third model is a traditional upstream-dominating situation, which will be employed to contrast with the first two downstream-dominating models. By changing the degree of substitutability of the two products made by these two manufacturers, there are some findings: (i) As a downstream leader in the supply chain, the retailer profit is more than the sum of the two duopolistic manufacturers. (ii) If the duopolistic manufacturers also play the leader-follower game, the leader manufacturer‟s profit is greater than the follower manufacturer‟s profit. (iii) When comparing to the manufacturer-dominating model, the retailer-dominating models have the lower retail price and an increase in sale quantities. (iv) Compared to the manufacturer-dominating model, the retailer-dominating models‟ producer surplus, consumer surplus, and social welfare are improved.
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