The adoption of personalized pricing in a supply chain with a common retailer

This paper develops a game-theoretical model to investigate the adoption of personalized pricing in a supply chain with a common retailer and multiple suppliers. We first analyze the optimal personalized pricing strategy for the retailer and then examine its economic impacts on both suppliers and the entire supply chain, aiming to provide insights for supply chain managers regarding the adoption of personalized pricing strategy. We find that the personalized pricing strategy for the retailer depends critically on the degree of product differentiation between two suppliers. If the differentiation level is high, the retailer adopts personalized pricing for both products, which enhances suppliers’ profits and also enables the entire supply chain to achieve its maximum profit. If the differentiation level is moderate, the retailer adopts personalized pricing for only one product, even if both products are ex-ante symmetric. This pricing strategy benefits (may harm) the supplier whose products are priced differently (uniformly), deviating from the strategy preferred by the entire supply chain and therefore warranting special attention. If the differentiation level is low, the retailer again adopts personalized pricing for both products. However, this pricing strategy may harm upstream suppliers by intensifying upstream competition, although it benefits the retailer and the entire channel. Consequently, channel members may have inconsistent preferences for personalized pricing. Our work underscores that the downstream personalized pricing strategies are not always optimal for upstream suppliers and the entire supply chain, thereby holding significance for supply chain managers aiming to adopt personalized pricing for greater profits.