Impact of Supplier's RaD Investment on Supply Chain Operations under Stochastic Isoelastic Demand and Consignment Contract

Abstract

Abstract. In a decentralized supply chain with an upstream supplier and a downstream platform, the supplier sells a product to a stochastic isoelastic demand market through a platform. The supplier considers to make R&D investment to reduce its production cost, and hence the supply chain becomes more cost efficient. We first characterize the equilibrium pricing and production decisions for the two chain members, under any given R&D investment strategy. We then analyze the impact of the supplier's R&D investment on equilibrium decisions and corresponding profits of the two chain members. We find that the supplier's R&D investment can lead to a lower retail price and a higher production quantity, and always benefit the platform's profit.