THE RETAILER’S FREEBIES PROMOTION STRATEGY WITH MANUFACTURER ENCROACHMENT

In recent years, the encroachment of the upstream manufacturer on the retailer has become increasingly frequent. This study focuses on the influence of the retailer’s freebies promotion on the manufacturer’s encroachment decisions. The manufacturer produces products and wholesales them to the downstream retailer, and then the retailer sells them directly to the end retail market. To obtain more profits, the retailer can decide whether to offer freebies before the promotion day. We first obtain the manufacturer’s encroachment decisions and promotion decisions of the retailer by comparing their payoffs under simultaneous quantity decisions. Then, we characterize the impact of firms’ decisions on each other. Finally, we change the sequences for quantity decisions to verify the robustness of our results. Our analysis shows that compared with the retailer offering freebie promotion, the manufacturer prefers to encroach on the retailer under no freebie promotion. Furthermore, compared with sequential quantity decisions, the manufacturer prefers simultaneous quantity decisions. From the perspective of the retailer, the adoption of freebie promotion can prevent manufacturer encroachment to a certain extent.