Two-period pricing and utilization decisions in a dual-channel service-only supply chain

E-commerce technology and the growth of online shopping have pushed manufacturers to apply a dual-channel supply chain strategy. It has also become critical for the service-only industry to form dual-channel service-only supply chains (DCSOSCs). This study investigates dynamic pricing and service capacity utilization decisions in DCSOSC over two consecutive periods. The decisions in service price and utilization of the current and previous periods affect each channel’s demand function. Increasing capacity utilization attracts customers to purchase the service and leads to higher system costs. The model is formulated and solved under simultaneous and sequential (non-cooperative) game frameworks: the vertical Nash (VN) and the Stackelberg leadership games. Based on the numerical analysis, the service-only system will have higher profits, if the service provider has the commitment or market power to move first, because the payoffs for both channels are higher for the Stackelberg game than for the VN game. The results also show that customer switching behavior, which is formulated using cross-channel and cross-time sensitivity parameters, needs to be closely monitored by managers because it significantly influences system profits. The sensitivity to the utilization parameter, which measures customer preferences under different levels of service capacity, also considerably impacts the system payoff.