Pricing against supply disruption under duopolistic competition

This paper investigates two pricing policies against supply disruption for a supply chain with vertical product differentiation as well as an external competitor who sells similar products. Market-chasing pricing policy aims at minimizing the market share loss, while profit-chasing pricing policy aims to minimize the profit loss under supply disruption. Stackelberg games are established to analyze the equilibrium pricing behaviors with both pricing policies under supply disruption. It is shown that the effectiveness of market-chasing pricing policy depends on the competitive power of the manufacturer and competitor, while profit-chasing pricing policy is always helpful for the manufacturer to reduce her profit loss under supply disruption. Furthermore, to minimize market share loss, firms need to lower both the price of the disrupted product and the undisrupted product. But firms can lower the price of the disrupted product only and increase the price of other undisrupted products to minimize the profit loss.