Channel Pricing Optimizer
Optimize producer pricing in a vertical channel with different retailer response models.
- Results may contain errors. The output from this tool may be inaccurate, incomplete, or incorrect. Users should independently verify all results.
- No warranty. This tool is provided "as is" without any warranty of any kind.
- User assumes all risk. Users assume full responsibility for reviewing and validating any output.
1 Model Setup
Notation
Solution Method
For linear demand (Q = a − b·P), exact analytical solutions are provided using first-order conditions. For non-linear demand functions, solutions are approximate, obtained via grid search optimization.
2 Retailer Type
Vertically Integrated
Producer sets retail price P directly. No separate retailer margin.
Cost-Plus Retailer
Retailer applies fixed markup to wholesale price: P = W × (1 + markup)
Strategic Retailer
Retailer optimizes own profit given W. Producer anticipates this response.
Optimal Solution Found
Producer
Retailer
Market
Interpretation
Producer profit as a function of the decision variable.
Comparison of optimal outcomes across all three retailer types.
| Metric | Integrated | Cost-Plus | Strategic |
|---|
R Code for Channel Pricing Optimization
This R code replicates the optimization for all three channel types. Copy and run in R or RStudio.