Retailer's decoy strategy versus consumers' reference price effect in a retailer-Stackelberg supply chain

Decoy strategy for bundling is an important marketing option because it can reflect the behavior resulting from consumers' reference price effect. This paper develops a game-theoretic model of a dyadic supply chain to study the joint decisions on pricing and decoy strategies in the presence of consumers' reference price effect. The retailer chooses one of the decoy strategies (phantom decoy-mixed bundling, decoy-mixed bundling) and selling prices to maximize her profit. Our study shows that: under both decoy strategies, the retailer and the manufacturer benefit from consumers' low reference price effect; however, the high reference price effect hurts their profits.

Automated summary

"The decoy strategy for bundling is an important marketing option that leverages consumers' reference price effect. This study develops a game-theoretic model to analyze the joint decisions on pricing and decoy strategies in a supply chain. The findings reveal that both the retailer and manufacturer benefit from consumers' low reference price effect under both decoy strategies, while the high reference price effect negatively impacts their profits."