Equilibrium Analysis of Pricing Strategies in the Grey Market

Purpose/Significance With the rapid development of the grey market, the pricing strategy combination decisions of firms are studied to respond to the grey market when independent grey market speculators are involved in grey market speculation. Design/Methodology A Stackelberg game model consisting of two perfectly competitive firms and an independent grey market is constructed to consider firms’ choice of two different pricing strategies to cope with the grey market, and the Nash equilibrium solution of firms’ pricing decisions for the grey market under four strategic combinations and the conditions for the existence of the grey market are analyzed. Conclusions/Findings With two different pricing strategies, when the product competition is not too fierce and the foreign market size is large, the firms use the wholesale price strategy to prevail, and conversely the firms prefer to choose the retail price strategy.