A Model of Triple-Channel Interaction Dynamics in Pharmaceutical Retailing in Emerging Economies

TL;DR

This paper develops a theoretical model to analyze the complex interactions among unorganized, organized, and e-pharmaceutical retail channels in emerging economies, revealing counterintuitive insights into pricing and profitability.

Contribution

It introduces a novel game-theoretic model capturing triple-channel interactions in pharmaceutical retailing, highlighting factors influencing retailer profits and consumer behavior.

Findings

Increased consumer acceptance of unorganized retailers decreases profits for all channels.

Higher transportation costs to unorganized retailers increase their profits.

Consumer marginal utility of money does not affect optimal pricing but impacts profits.

Abstract

The survival of unorganized pharmacies is increasingly challenging in the face of growing competition from organized and e-pharmaceutical retail channels in emerging economies. A theoretical model is developed to capture the triple-channel interactions among unorganized, organized and e-retailing in emerging markets, taking into account the essential features of the pharmaceutical retail landscape, consumers, retailers and pharmaceutical products. Given the retailer and customer-specific factors, the price-setting game between the triple-channel retailers yielded the optimal prices for these retailers. The analysis found that the product category level demand has no influence on optimal pricing strategies of the retailers. The analysis also reveals counterintuitive results, for instance, (i) an increase in customer acceptance of unorganized retailers will result in a decrease in profits of both unorganized and organized retailers; (ii) as the distance and transportation cost to unorganized retailers increases for the consumers, the profit of the unorganized retailer increases; and (iii) consumers marginal utility of money has no influence on the optimal price, but have an influence on the profit of the three retail channels. Our research findings offer valuable insights for policymakers facing challenges in achieving a balanced growth among the organized, unorganized, and e-pharmaceutical retail sectors in emerging economies. Keywords: Unorganized, Organized, and Online E-Retail; Nanostores; Emerging Markets; Game Theory.