keywords: Discount rate, linear demand function, price discount, price margin, manufacturer-retailer channel, Stackelberg game
There are lots of price discount models, but game-theoretic models have not been used to model sequential price discount from the manufacturer to the consumer through the retailer. This work deals with a manufacturer-retailer price discount Stackelberg game model in which the manufacturer’s discount can be given to the consumer through the retailer. The work models the players’ payoffs using the players’ price margins, discount rates and a linear demand function. Considering four scenarios the work obtains the players’ optimal prices and payoffs. The work observes that each player performs better with non-provision of discount provided that the other channel member gives discount. Further, with equal discounts, the manufacturer’s payoff is larger than the retailer’s payoff for low discount rate. The reverse is the case for relatively large discounts. As the channel leader the manufacturer can thus opt for lower but equal discount rates. He can incentivise or where necessary constrain the retailer to give discount to the consumer without giving any to the retailer.