Price coordination in a three-level supply chain with different channel structures using game-theoretic approach

Abstract

Pricing is an important decision affecting the profitability of the supply chain system and individual channel members. It is important to coordinate pricing decisions for different channel members of the supply chain under different channel structures and power structures. Most studies to date have focused on price coordination in the traditional channel structure, mostly composed of two echelons. Little attention has been given to the multi-level channel. This paper studies price coordination problem in a threelevel supply chain composed of a single supplier, a single manufacturer and a single retailer. Three types of channel structures are considered, namely, the decentralized, the semi-integrated, and the integrated. Two power structures are studied for the decentralized and the semi-integrated channels. The leader-follower power structure is modeled as a Stackelberg game, where the manufacturer always takes the leadership, while the independent power structure is treated as a simultaneous non-cooperative game (simply Nash game). We explore the effects of power structures, channel structures and market parameters on equilibrium prices and profits. The results show that the manufacturer or the integrated members had better take the channel leadership. We also find that the integration for the manufacturer and the retailer cannot always improve their profits in a monopoly. Besides, when product cost is larger than a certain level, the chain members’ profits will increase as the market becomes more sensitive to the retail price.