Manufacturer's decisions with different channel structures in a gray market setting

In view of the phenomenon that gray market is very widespread in real life; this paper establishes a decision model for a manufacturer operating in two markets with different customer price sensitivity. Four types of channel structure are considered here, regarding the manufacturer sells its product directly or through an independent exclusive distributor. Under the framework of stackelberg game, the paper investigates the problem of manufacturer's decisions of different channel structures. The paper derives equilibrium strategies of each type, and shows the range of parameters in which the gray market exists.