Unilateral Pricing Policy in Multichannel Setting : An Analytical Approach

The use of unilateral pricing policy (UPP), in which the manufacturer sets the common retail price for all retailers, is increasingly popular in the United States as a result of recent legal developments. This paper develops an analytical framework to model UPP in multichannel markets. The objective is to model optimal UPP by a manufacturer and subsequent determination of optimal in-store service by the offline retailer. The paper also examines conditions under which UPP benefits the manufacturer, offline and online retailers compared to the conventional pricing mechanism in which the manufacturer sets the wholesale price and retailers then set their retail prices independently. The model considers the extent of "showrooming" (visiting an offline retailer but buying from an online competitor) that occurs among customers and their sensitivity to in-store services provided by the offline retailer. The key results from the analytical framework are: (1) When showrooming tendency is high among customers and when the customers are sensitive to in-store service provided by the offline retailer, both offline and online retailers benefit from UPP; (2) however, the manufacturer is not better off under UPP relative to conventional pricing policies