Strategic Alliances and Competition in a Multi-Echelon Retailing System: Service Policies and Pricing Approach

Many dual-channel retailers (DCRs) sell manufacturers' (vendors') owned products, while delivering and returning online items through third-party logistics and service providers (3PLs). The multiplayers setting trigger different possible alliances, interactive tactics, and optimal solutions or decisions. Also, the lenient return policies used by the current retailing systems lay the ground for vast return volumes and require tailored and interactive service levels in both selling channels. Indeed, those service levels do not only affect customers' purchasing behaviour but have a great influence on customer-return behaviour as well. Thus, this paper studies the optimal retail service policy and logistical service policy set by a DCR and a 3PL in a two-echelon retailing system, respectively. Coordination and competition between players were studied when the manufacturer's selling price is exogenously determined. A more realistic and sophisticated framework is examined by including the manufacturer's pricing policy in a three-echelon retailing system. Accordingly, the possible retailer-provider and retailer-manufacturer alliances have been studied alongside the fully competitive scheme. Decentralization in this paper is merely modelled using simultaneous Nash games. Properties of optimal policies and important managerial insights have been devised through both analytical and sensitive analysis. Our most important finding is that the retailer-manufacturer alliance almost always outperforms the retailer-provider alliance except when online customers have a high tendency to return their purchases through the same-channel return option.