Impact of Retailer Competition on Manufacturer's Decisions and Profit at Equilibrium

Hotkar, P and Mohan, U (2013) Impact of Retailer Competition on Manufacturer's Decisions and Profit at Equilibrium. International Game Theory Review, 15 (4): 1340032. ISSN 1793-6675

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As most of the supply chains in practice are decentralized, a key issue in supply chain management is to study the coordination of supply chain. The interactions among players are typically of two types, viz. vertical competition and horizontal competition. We use a game theoretic framework to analyze a two-stage supply chain. The supply chain is modeled as a Stackelberg game with a manufacturer as leader and multiple retailers as followers. We consider multiple retailers competing on quantities (Cournot competition) and study its impact on manufacturer's equilibrium decisions and profits. We show that the wholesale price contract does not achieve Nash equilibrium when retailers offer uniform pricing. On the other hand, in case of perfect price discrimination we prove the existence of unique Nash equilibrium in both deterministic and stochastic demand set-up. Under stochastic demand set-up, we consider information asymmetry between the manufacturer and retailers with respect to demand signal. Furthermore, we show the retailers' selling effort boost up the sales. As variance of sales can hurt the manufacturer's production decisions badly, we conjecture that the manufacturer can offer a retailer incentive contract which can manipulate retailers' equilibrium decision.

Item Type: Article
Additional Information: The research article was published by the author with the affiliation of IIT Madras
Subjects: Operations Management
Date Deposited: 02 Aug 2023 18:42
Last Modified: 02 Aug 2023 22:16

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