Optimal Market Encroachment and Pricing Strategy to Form a Global Supply Chain with Strategic Consumers

Abstract

This paper constructs theoretical game models to explore the joint effects of tax rate disparity and consumers’ strategic purchasing behavior on brand’s foreign market encroachment strategy and the downstream enterprises’ pricing strategy, as well as supply chain members’ profit. Results show that (1) Under selling subsidiary encroachment, uniform pricing strategy is only adopted when strategic consumers’ patience level is relatively high and the tax rate disparity is sufficiently low. Under retail encroachment, the retailer prefers dynamic pricing strategy when strategic consumers’ patience level is relatively low, and uniform pricing strategy otherwise. (2) When dynamic pricing strategy is chosen, a larger tax rate disparity can benefit the selling subsidiary and higher strategic consumers’ patience level may benefit both the brand and the selling subsidiary. (3) When strategic consumers’ patience level is relatively low, with sufficiently large tax rate disparity, the brand would always choose retail encroachment strategy. With relatively small tax rate disparity, the brand may choose the selling subsidiary encroachment if the establishing cost is not so high, and retail encroachment otherwise. However, when strategic consumers’ patience level is relatively high, the brand may also choose selling subsidiary encroachment strategy even if the tax rate disparity is not that high, regardless of what the establishing cost is. This is probably due to retailer’s dynamic pricing strategy can bring more demand than the selling subsidiary’s uniform pricing strategy does.