Pricing strategy and product quality design with platform-investment

Xiujing Dang; Yang Xu; Gongbing Bi; Lei Qin

doi:10.3934/jimo.2021224

Article Contents

2023, Volume 19, Issue 2: 1166-1186. Doi: 10.3934/jimo.2021224

This issue Previous Article Product innovation, process innovation and advertising-based goodwill: A dynamic analysis in a monopoly Next Article An adaptive large neighborhood search heuristic for multi-commodity two-echelon vehicle routing problem with satellite synchronization

Pricing strategy and product quality design with platform-investment

1.
IIF, School of Management, University of Science and Technology of China, Hefei 230026, China
2.
School of Finance, Anhui University of Finance and Economics, Bengbu 233030, China
3.
Faculty of Management and Economics, Kunming University of Science and Technology, Kunming 650093, China

^* Corresponding author: Gongbing Bi
^* Corresponding author: Gongbing Bi

Received: November 30, 2020

Revised: September 30, 2021

Early access: January 2022

Published: February 2023

The research is supported by the Key Program of the National Natural Science Foundation of China [Grant Number: 71731010], the National Natural Science Foundation of China [Grant Number: 72171214, 71571174, 72101003, 71801203], the Key Research and Development Project of Anhui Province [Grant Number: 201904a07020040], the Key Education Department Project of Anhui Province [SK2020A0388] and Key Project of West Anhui University [wxsk201923]

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Abstract

With the development of business, more consumers are quality sensitive and improving the product quality becomes particularly important. We mainly discuss two investment strategies: retailer-investment and platform-investment. Compared with non-investment case, only if consumer sensitivity is not too high, it is profitable for the retailer to select retailer-investment. When both retailer-investment and platform-investment are viable, the choice of investment mechanism depends on the profit-sharing ratio. Particularly, if the ratio is within a certain range, the optimal investment strategy is platform-investment, achieving a triple-win outcome. Besides, to effectively alleviate the contradiction between the retailer's moral hazard problem and the sustainable value-added effect of platform-investment, we further research the contract term. These results give us some meaningful management inspirations in investment mechanism.

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Mathematics Subject Classification: Primary: 90B50; Secondary: 90B60.

Citation:

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Figure 1. The impact of $ \lambda $ on decision variables

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Figure 2. The impact of $ \lambda $ and $ \theta $ on balance profit

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Figure 3. The impact of $ \theta $ on supply chain performance

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Figure 4. The impact of $ \theta $ on supply chain performance

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Table 1. Notations

Variables	Description
$ U $	The utility that a consumer derives from the product
$ V $	The consumer's utility from the product functional attributes
$ p_{i} $	The unit retail price of the product under different scenarios,
	which is a decision variable of the retailer, where $ i=NI,RI,PI $
$ c $	The unit cost of the product
$ \lambda $	Consumer sensitivity to the quality-improvement product
$ e_i $	The product quality-improvement level, which is a decision
	variable of the retailer or platform, where $ i=RI,PI $
$ k $	The product quality-improvement cost parameter of the retailer
$ \beta $	The product quality-improvement cost parameter of the platform
$ \theta $	The profit-sharing ratio given by the platform
$ \pi_i $	The retailer's profit, where $ i=NI,RI,PI $
$ \Pi_i $	The platform's profit, where $ i=PI $

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