Pricing Strategies for Competitive Water Supply Chains under Different Power Structures: An Application to the South-to-North Water Diversion Project in China

• Main Authors: Wenyi Du, Yubing Fan, Lina Yan
• Format: Article
• Language: English
• Published: MDPI AG 2018-08-01
• Series: Sustainability
• Subjects: competitive supply chain; power structure; pricing strategy; South-to-North Water Diversion Project
• Online Access: http://www.mdpi.com/2071-1050/10/8/2892

Under two different power structures, where the supplier and the distributor, respectively, are modeled as the leader, this paper studies water pricing strategies in two competing water resources supply chains. We assume that each water supply chain consists of a risk-neutral water supplier and a risk-neutral water distributor. We build different decision models for two competitive water resources supply chains, derive the optimal decision strategies for the water supply chain members, and analyze how competition intensity affects these decisions. Analytical results show that when the supplier is the leader, its water wholesale price is always higher than that when the distributor serves as the leader. On the other hand, the retail price and the two supply chains’ channel profits depend on the competition intensity, but are independent of the power structure. To illustrate the proposed models, we apply them to examine the water pricing strategies in the South-to-North Water Diversion Project in China. The results showed significant insights into the pricing strategies of water resources in different routes of this massive water diversion project.