Comparing Equal Channel Power, Distinct Channel Power and Crisis Cartel in Mitigating the Effect of Production Cost Disruptions—A Game Theoretic Approach

ABSTRACT The study checks the opportunities and challenges in using different competition models between downstream channel partners, namely, comparable channel power, distinct channel power and crisis cartel during production cost disruption. We employed a supply chain consisting of a manufacturer‐modern trade outlet‐e‐tailer, and different game theoretic models like Nash, Stackelberg and Collusion games were used to analyse the pre‐disruption and disruption cases. The research revealed that the downstream channel partners could enhance profitability during disruptions by engaging in crisis cartels or operating under the competitor's leadership, surpassing pre‐disruption levels. However, models involving channel leadership and comparable channel power yield lower profits for downstream partners during disruption. Surprisingly, none of the models offer improved profitability for the manufacturer during production cost disruptions, and both the crisis cartel and channel leadership models prove detrimental to the manufacturer's profits. Similarly, none of the models could improve the consumer surplus of customers. Additionally, we extend the basic model by analysing the impact of customer channel preference and the price elasticity of demand during production disruptions. We found that the channel preference coefficient plays a crucial role in determining the profitability of all supply chain partners. Furthermore, the price elasticity of demand significantly affects pricing strategies for the modern trade outlet and e‐tailer but does not influence the manufacturer.