Analysis and Modelling of Competition in the Spare Parts Aftermarket: the case of Volkswagen Group Italia

The automotive sector is facing an accelerated transformation combined with new technologies and changing mobility habits are some of the factors that are transforming the aftermarket business. The independent aftermarket (IAM) is particularly important when it comes to parts, servicing and repairs for older vehicles, representing. Over the last decade, the IAM sector has increasingly positioned itself to compete on both production times and high quality with respect to the original. On the other hand, original equipment manufacturers (OEM), despite their higher perceived quality and reliability, struggle to compete due to vehicle owners' shift towards the IAM after cars ageing and expiration of warranties. To maintain competitiveness, OEMs needs to innovate in service delivery, pricing strategies and customer engagement with the aim of aligning with the evolving expectation of vehicle owners. The “Product Marketing” Department of the “Group Service” department of Volkswagen Group Italia has been collaborating since 2021 with “Standard & Testing”, a spin-off of the Politecnico di Torino, to produce various analysis regarding many aspects of individual components coming from the independent aftermarket, for example information on volumes and prices and quality. Consequently, these data are studied to develop positioning strategies including price strategies. Often, however, these measures turn out to be late, as the criticality of the situation is realized only after the IAM has considerably increased its market shares. It is therefore important to understand and predict the time window in which competition with IAM becomes particularly aggressive, with the aim of implementing, with sufficient advance notice, the measures necessary to maintain their sales volumes, or even prevent the overtaking of IAM, in terms of volumes/market share, against VGI. This thesis aims to analyse the competitive environment described until this point by producing a model based on differential game theory. Differential games have multiple applications in economics and management, particularly in modelling and analysing dynamic strategic interactions among rational decision-makers over time, enabling firms or policymakers to anticipate rivals’ actions and adjust strategies in real time to achieve optimal outcomes. A differential game model, whose purpose is to analyse the competitive dynamics in the automotive aftermarket between OEM and IAM, is presented. It considers the two channels’ characteristics with the aim of returning the optimal pricing strategies that could be adopted to maximise parameters like profit and market share, as well as providing relevant insights on consumer preference changes and long-term market effects. To solve the resulting dynamic optimisation problem, both open-loop and feedback control strategies are investigated. The open-loop approach provides dynamics deriving from pricing paths that are committed from the start, while the feedback setting's results reveal insights on the importance of strategic adaptability and on its impact on long-term performances. The feedback analysis computations are going to be handled through the numerical resolution of a set of Hamilton-Jacobi-Bellman equations using a semi-Lagrangian discretisation method. These simulations highlight the importance of dynamic pricing for the achievement of market relevance while also demonstrating how differences in firms' objectives, their policy and initial state lead to distinct optimal behaviours.