Competition and Pricing Scheme in Fashion Supply Chain: The Fast-fashion and the Luxury Brands

Competition is widely emerging in the fashion supply chain which incentivizes brands to strategically implement different pricing schemes. We study the competition between a fast-fashion brand and a luxury brand that sell substitutable products. Through the whole selling season, the fast-fashion brand commonly adjusts its retail price. Specifically, it may either determine the promotion price responsively in the clearance period (dynamic pricing) or pre-determine and pre-announce it in the regular period (pre-announcement pricing). The luxury brand prefers an unchanged retail price to maintain its brand image. We study how to optimally make pricing decisions in different pricing schemes and how consumers’ strategic behavior, consumers’ hedonic superiority and brands’ pricing schemes affect the optimal decisions. We find that consumers’ strategic behavior is detrimental to both brands even in a competitive pricing model. Besides, consumers’ hedonic superiority will benefit the luxury brand but enhance the fast-fashion brand’s profit only when the cost differentiation is small. Also, we find that a pre-announcement pricing scheme will be unambiguously beneficial to both brands and the whole supply chain. Furthermore, a pre-announcement pricing scheme can alleviate price competition, mitigate monopolization and consumers’ strategic behavior. Finally, we conduct two extensions and find that the qualitatively remain unchanged.