Final Report Summary - DUALCHANNEL (Dual Sales Channel Management: Analytical Analysis and Behavioral Experiments)
The overall objective of our project is to develop dual channel strategies that increase the efficiency in a manufacturer-retailer supply chain by aligning the incentives of the firms. In particular, we determine efficient contracting mechanisms between a manufacturer and a retailer. We identify dual channel policies that characterize how much the manufacturer should sell through each channel, and how the profits will be shared between the firms, given the product and market characteristics.
We proceed through two streams:
- Analytical study: We develop an analytical model that addresses the operational aspects of the dual channel relation between the manufacturer and the retailer.
- Experimental study: We conduct controlled experiments with human subjects to investigate whether our channel policy recommendations are consistent with human decision-maker behavior.
The analytical study
- We conducted an extended literature survey.
- We developed a game-theoretical model of a dual channel relationship. The model considers service competition between the two channels, and includes a realistic consumer channel choice submodel.
- By solving the model using analytical and numerical methods, we characterized optimal dual channel strategies for manufacturers. We studied wholesale price and buyback contracts.
- We extended the model to address risk aversion of subjects.
- We developed two additional dual channel models that study price competition.
- We studied a retail-channel-only model to better understand the interaction between the manufacturer and the retailer within the retail channel.
The experimental study
- We prepared the existing CAFE finance laboratory of the host institution for conducting experiments.
- Using MUMS language, we coded the scripts to conduct experiments on our analytical models.
- We conducted 16 experimental sessions to which 216 subjects attended.
- We compared the experimental performances of the buyback and wholesale price contracts, in dual channel and retail-channel-only models.
- We compared experimental data with theoretical predictions to determine deviations due to behavioral effects.
We proceed through two streams:
- Analytical study: We develop an analytical model that addresses the operational aspects of the dual channel relation between the manufacturer and the retailer.
- Experimental study: We conduct controlled experiments with human subjects to investigate whether our channel policy recommendations are consistent with human decision-maker behavior.
The analytical study
- We conducted an extended literature survey.
- We developed a game-theoretical model of a dual channel relationship. The model considers service competition between the two channels, and includes a realistic consumer channel choice submodel.
- By solving the model using analytical and numerical methods, we characterized optimal dual channel strategies for manufacturers. We studied wholesale price and buyback contracts.
- We extended the model to address risk aversion of subjects.
- We developed two additional dual channel models that study price competition.
- We studied a retail-channel-only model to better understand the interaction between the manufacturer and the retailer within the retail channel.
The experimental study
- We prepared the existing CAFE finance laboratory of the host institution for conducting experiments.
- Using MUMS language, we coded the scripts to conduct experiments on our analytical models.
- We conducted 16 experimental sessions to which 216 subjects attended.
- We compared the experimental performances of the buyback and wholesale price contracts, in dual channel and retail-channel-only models.
- We compared experimental data with theoretical predictions to determine deviations due to behavioral effects.
