Pricing decisions of digital goods in presence of piracy: various supply agreements

This study examined the digital products' supply chain where two retailers and a manufacturer cooperate. The manufacturer sells digital products through traditional and online retailers. The Stackelberg game is used to implement the best pricing policy where the retailers follow the manufacturer whose role is leader. After the determination of the wholesale price by the manufacturer, each retailer determines the order quantity and the retail price. This study first examines the state of the digital products supply chain, with each member of the supply chain operating independently, then looks at the contracts offered to retailers by the manufacturer until the members of the supply chain cooperate under these contracts. Moreover, Piracy's influence on pricing strategies, decision variables, and digital products' supply chain member profits is examined, and online and traditional retailer channels with different service levels are considered. The goal of this study is to find out the best contract for retail prices and ordering quantities for each retailer to be in optimal condition such that chain profit is maximised. For this purpose, the profit-sharing contract and cost-sharing contract are employed. Finally, the results of 'contract mode' and 'no contract mode' are compared and the optimal solutions are explained.