Jianqiang Zhang

Parallel importation (the unauthorized cross-border resale of genuine products) and outsourcing (the delegation of manufacturing activities to external contract manufacturers) are common yet insufficiently explored phenomena in global supply chains. Using a game-theoretic model of a multinational firm (MNF) and a contract manufacturer (CM), we analyze how parallel importation and outsourcing interact. We find that higher in-house production costs borne by the MNF reduce the risk of parallel importation. While parallel imports diminish total demand under in-house production, outsourcing counteracts this loss as the CM strategically lowers wholesale prices to stabilize market share. Although parallel imports consistently erode the CM's profit and overall supply-chain efficiency, they can counter-intuitively benefit the MNF by inducing wholesale-price concessions. This explains why the MNF may retain in-house production despite higher costs to deter parallel imports. Robustness is maintained under various demand and supply conditions, including consumer bias for or against parallel imports, stochastic gray-market entry, and the presence of positive contract-manufacturing costs.

Firms frequently extend their brand by introducing products in new categories and offering free samples or demonstrations for customers to learn about the quality of the new products before purchasing. When introducing new products based on customers’ purchase behavior in the former category, firms face two customer segments: their own customers and the competitor’s customers. Firms can practice behavior-based pricing (BBP) by charging different prices in the two segments. Moreover, firms can practice behavior-based quality disclosure (BBD) by disclosing quality information to the two customer segments differently. In this paper, we examine how firms practice BBD in addition to BBP. We find that in contrast to the acquisition-focused BBP, firms perform retention-focused BBD by increasing quality disclosure to their own customers and decreasing it to the competitor’s customers. Unlike BBP, which decreases second-period profit and increases first-period profit, BBD increases second-period profit but decreases first-period profit when the disclosure cost is low. We also show that when firms endogenously choose BBD, the equilibrium is a prisoner’s dilemma when the disclosure cost is low and a win-win outcome when the disclosure cost is high. This paper was accepted by Raphael Thomadsen, marketing. Funding: This research was supported by the National Natural Science Foundation of China [Grant 72171103] and the Blanche “Peg” Philpott Professorship. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.01081 .

Parallel imports of gray products across markets are a worldwide concern for manufacturers. Extant research has focused on parallel imports of regular goods that do not provide status value. In this paper, we investigate parallel imports of conspicuously consumed status goods. We consider a manufacturer who directly sells a status product to consumers in two markets that value the product differently and a gray marketer that can import the product across markets. Our analysis shows that, though parallel imports decrease a manufacturer's profit from selling regular goods, it can increase their profit from selling status goods. Furthermore, the manufacturer decides whether to use the same or different aesthetic design for products across markets. With the same design, the gray and manufacturer‐authorized products look identical, while different designs make them distinguishable, which affects their status value. We find that parallel imports benefit the manufacturer in a broader range of situations under the different‐design strategy, whereas the same‐design strategy increases the gray marketer's profit. When the two markets are sufficiently similar, the manufacturer uses the same design to induce parallel imports. When the two markets are sufficiently different, the manufacturer uses different designs to either deter parallel imports or improve their profit while competing with the gray marketer.

Recent technological advances in digitization and online communications have enabled unauthorized reproduction and illegal file-sharing. However, controversies still exist over the impacts of digital content piracy and copyright protection policies. Using a game-theoretic framework, we examine the impacts of digital content piracy and copyright protection policies on product quality, firm profitability, consumer surplus, and social welfare when consumers exhibit loss aversion in the quality dimension. Specifically, consumers are initially uncertain about the product quality and will form an expectation, but once they buy the licensed product or use piracy, they know the actual product quality and compare it with their expectation. When consumers are loss averse, consumer propensity to an option is more negatively affected by product quality above the expectation than positively affected by product quality below the expectation. Our analysis shows that although piracy exerts a negative cannibalization effect in the absence of loss aversion, it can exert an additional positive information effect when the degree of loss aversion on the licensed product is higher than the degree of loss aversion on piracy. We find that when the information effect dominates the cannibalization effect, piracy can lead to a win-win situation for firm profitability and consumer surplus. Moreover, under certain circumstances, anti-protection policies can simultaneously raise product quality, firm profitability and consumer surplus. The rationale behind the positive impacts of piracy and anti-protection policies is rooted in the influences of loss aversion behavior on consumer purchase decisions. The results show that it is essential to quantify the degree of consumer loss aversion for firms in formulating pricing and quality strategies and for policymakers to develop copyright protection policies.

The Internet offers digital content disc producers the opportunities to design dual channels by introducing an online-direct store alongside traditional retail stores, but also leads related firms to suffer significant piracy problems. Using a game-theoretic framework, we explore dual-channel marketing optimality as a piracy-mitigating strategy for digital content sold in the physical disc format. We construct a price-setting game between a digital content producer and its independent retailer(s) in a pirated market by endogenizing the producer's copyright protection investments. We show that dual-channel marketing, a complement or a substitute for conventional copyright protection, can strategically mitigate the piracy level by increasing the equal-size retail sales volume. We also investigate how firms' pricing strategies and profits are influenced by the endogenous interaction of dual-channel marketing and copyright protection. We unexpectedly find that in a pirated market with insufficient copyright protection, dual-channel marketing can simultaneously raise firm pricing and sales volumes when the producer sells through a monopolistic retailer. We also identify the conditions under which dual-channel marketing can mitigate profit losses caused by piracy for the producer and the retailer(s). Unlike previous research which shows that dual-channel marketing benefits the producer and the monopolistic retailer because it mitigates double marginalization, in the pirated market, this win-win outcome occurs even if accompanied by aggravated double marginalization. Moreover, dual-channel marketing can mitigate all the firms' profit losses caused by piracy only when it can complement conventional copyright protection, i.e., when the producer sells through a monopolistic retailer or duopolistic retailers. In each situation, counter-intuitively, as copyright protection becomes increasingly costly, although the retailer(s) is (are) more willing to accept dual-channel marketing, the producer has a decreased incentive to design such sales channels.

Consumers incur utility loss when they find that their peers pay different prices for the same product, which seemingly poses a threat to firms practising personalized pricing. This paper studies the interaction between peer-induced fairness and personalized pricing in a distribution channel consisting of one manufacturer and one retailer. While consumers are fair-minded, the retailer can apply personalized prices. Using a game-theoretic approach, we find that consumer fairness concern compels the retailer to reduce prices. However, the retailer will reduce the price toward high-valued consumers by a larger amount than the price toward low-valued consumers. This drives the manufacturer to offer a much lower wholesale price. As a result, the retailer using personalized pricing is better off in the presence of consumer fairness concern. This finding still holds when the capability of personalized pricing is endogenous, when social comparison may increase a consumer’s utility, and when the degree of fairness concern depends on the size of population. These effects are unique to peer-induced fairness, while related emotions such as distributional fairness concern cannot improve the retailer’s profit.

Consumers experience a sense of loss when a product’s quality does not match their expectations. To alleviate consumer loss aversion (CLA), firms can disclose information to reduce consumers’ uncertainty about product quality and the resulting psychological loss. In this paper, we investigate the implications of CLA on firm profit, consumer surplus, and social welfare when firms endogenously make quality disclosure decisions. We find that CLA leads symmetric firms to disclose quality more often. Given that CLA weakly reduces consumers’ utility from buying a product and quality disclosure is costly, intuition suggests that CLA is detrimental to firms. We find that this intuition is true only in a monopoly. Surprisingly, CLA makes both firms in a competition better off. Moreover, CLA increases firms’ profit when they invest in quality disclosure instead of money-back guarantees to respond to CLA. We also find that CLA decreases consumer surplus and social welfare. Therefore, educating consumers to improve decision-making skills by deliberating on future outcomes and emotions can benefit firms at the cost of consumers and society. When firms disclose quality sequentially, CLA can discourage the follower from disclosing quality. A strong level of CLA increases the leader’s profit over the follower’s, thereby encouraging firms to be the first mover in quality disclosure.This paper was accepted by Juanjuan Zhang, marketing.