Optimal Pricing Strategies for Bundled Channel in a Smart Phone Supply Chain

We consider a smart phone supply chain in which customers purchase handsets and service as a bundled package. In this bundled channel, we consider three power structures- manufacturer Stackelberg leader, service operator Stackelberg leader, both manufacturer and service operator decide simultaneously. For each power structure, we study optimal decision of the manufacturer – retail price of smart phone and optimal decision of telecom service operator – service price of smart phone. Previous studies have assumed that “service price” is fixed, and service operator decides “subsidy amount” to be paid to the manufacturer. In our work, we relax this assumption and present some new insights. If the subsidy amount (paid by service operator to manufacturer) and service cost (incurred by service operator) are high, the manufacturer sets low retail price for smart phone hand set. If primary demand (for smart phones), subsidy amount and service cost are high, the service operator sets high service price.