A two-stage supply chain coordination mechanism considering price sensitive demand and quantity discounts

Barbara Venegas Quintrileo, Jose Antonio Ventura

Research output: Contribution to journalArticlepeer-review

32 Scopus citations

Abstract

This paper explores the coordination between a supplier and a buyer within a decentralized supply chain, through the use of quantity discounts in a game theoretic model. Within this model, the players face inventory and pricing decisions. We propose both cooperative and non-cooperative approaches considering that the product traded experiences a price sensitive demand. In the first case, we study the dynamics of the game from the supplier's side as the leader in the negotiation obtaining a Stackelberg equilibrium, and then show how the payoff of this player could still improve from this point. In the second case, a cooperative model is formulated, where decisions are taken simultaneously, emulating a centralized firm, showing the benefits of the cooperation between the players. We further formulate a pricing game, where the buyer is allowed to set different prices to the final customer as a reaction to the supplier's discount decisions. For the latter we investigate the difference between feasibility of implementing a retail discount given a current coordination mechanism and without it. Finally the implications of transportation costs are analyzed in the quantity discount schedule. Our findings are illustrated with a numerical example showing the difference in the players’ payoff in each case and the optimal strategies, comparing in each case our results with existing work.

Original languageEnglish (US)
Pages (from-to)524-533
Number of pages10
JournalEuropean Journal of Operational Research
Volume264
Issue number2
DOIs
StatePublished - Jan 16 2018

All Science Journal Classification (ASJC) codes

  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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