Pricing decision analysis for two differentiated products based on game theory

Over the past few years, the speed of product innovation is getting more fast, especially in electronic products, and new product innovation models can be expected to be appearing in response to new competitive landscapes, however, this requires the manufacturer to decide the prices of products of different types, simultaneously. This paper considers such a supply chain, there is one manufacturer who produces two differentiated products one is the innovation product of the other, who sells the two products to two different retailers respectively, and the two retailers then sell the two products to end consumer. Using game-theoretical approach, we examine each firm’s strategies, also explore the role of the manufacturer and the two retailers over two different scenarios. We get a number of insights into the economic behavior of firms, which can serve as the basis for empirical study in the future. Also, we analyze the results and give some insights on the influence of each parameter.