Distribution Channel Structure for Competing Supply Chains with Price and Lead-Time Sensitive Demand

This paper studies distribution channel structure strategies (to centralize or decentralize) for

two competing supply chains that sell substitutable products with price and lead-time sensitive

demand. We find that centralization (decentralization) associates with itself a price (lead- time)

advantage and a lead-time (price) disadvantage. As a result, price substitution and lead-time

substitution have different impact on the equilibrium channel structure. Specifically, price

substitution favors decentralization whereas lead-time substitution tends to result in

centralization. Our results show that the equilibrium channel structure may critically depend on

the game type (Bertrand vs. Cournot) and the profit criterion (manufacturer profit vs. channel

profit). In the Cournot model, centralization for both chains (CC) is always the only Nash

equilibrium. In the Bertrand model, CC is still the only Nash equilibrium for the manufacturer

profit criterion. On the channel profit criterion, however, it is the relative intensity of price and

lead-time substitution that determines the equilibrium channel structure.

Dr. Lucy Gongtao Chen is an assistant professor in Operations Management at NUS Business

School, National University of Singapore. She received her PhD in Operations Management from

the Johnson School of Management, Cornell University, prior to which she graduated from

Tsinghua University with a Bachelor degree. Her research is mainly in the areas of inventory

management, supply chain management, and the interface between operations and finance

(marketing). Her work has appeared in leading journals such as Management Science and

Manufacturing & Service Operations Management.