Cross-Sale In Integrated Supply Chain System

Abstract

In this article, we study two manufacturers, each producing a single substituting product, selling the products through their own centralized distribution channels, and also using each other’s distribution channel at their choice. Distribution channels are also substitutable. Using price competition and a game theoretic approach, we find that the same products can be sold at a higher price in the cross-sale channel than in its own centralized distribution channel.  The first mover in doing a cross-sale doesn’t necessarily enjoy the advantage in terms of higher profit.  Not only manufacturers can charge higher prices for their own and cross-sold product from their competitor, but also cross-sale increases the profits of both manufacturers; and most importantly, cross-sale improves the system’s profit dramatically.