Price competition and coordination in a multi-echelon supply chain

Abstract

This paper studies price coordination problem in a three-echelon 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 echelon, the chain members' profits will increase as the market becomes more sensitive to the retail price.