Coordinating a Supply Chain System with Retailers Under Both Price and Inventory Competition

Abstract

W e investigate a supply chain system with a common supplier selling to downstream retailers who are engaged in both price and inventory competition. We establish the existence and uniqueness of the purestrategy Nash equilibrium for the retailer game and study how a supplier can coordinate the system to achieve the best performance. Our main conclusions are as follows: First, a buyback contract can be used to coordinate retailers competing on both price and inventory in a sense that optimal retail prices and inventory levels arise as the Pareto-dominant equilibrium. With symmetric retailers, the system optimum arises as the unique symmetric equilibrium. Second, the particular type of competition experienced by retailers (price versus inventory competition) affects the characteristics of the contract. Specifically, strong price competition leads to a coordination mechanism with a positive buyback rate, where the supplier subsidizes retailers for leftover inventories; however, strong inventory competition leads to a negative buyback rate, where retailers are punished for overstocking. Using a linear expected demand function, we further explore the impact of system parameters on the coordination contract and the competitive equilibrium. We also find that the performance of the supplier's optimal contract is asymptotic to the system optimal coordination contract as competition becomes fierce.

Coordination and competition in a common retailer channel: Wholesale price versus revenue-sharing mechanisms

“…We have fixed the values of c i , v i and s i to investigate the effect of other parameters on the performance of the contracts though these parameters have some impact on the performance of contract. Similar parameter selection was found in the existing literature on channel coordination and demand substitution with a linear demand model: Boyaci and Ray (2003), Wang et al (2004), Qin and Yang (2008), and Zhao (2008). The variable parameters those have significance impact in contract performance and those we are interested to find out are α; β; γ and σ.…”

The role of information sharing and coordination in managing supply chain relationships

“…Increasingly with global supply chains, it is necessary, for example, to have direct discussions between the buyer's purchasing/supply management department and the supplier's operation's department to ensure the timely delivery of raw materials or component shipments and to establish quality requirements for supplies (Zhao, 2008). Discussing requirements between supply chain members may occur between operations and purchasing/supply management, or sales/marketing and operations, or even operations and operations depending on the activities being coordinated.…”

Pricing and inventory management in a system with multiple competing retailers under (r, Q) policies

“…Gallego et al [21] discuss a system under Bertrand competition with asymmetric nonlinear demand. Zhao [43] studies a supply chain with multiple retailers that compete in both price and inventory. Lin and Sibdari [26] address a multi-period pricing model with multiple retailers facing Bernoulli demands.…”