Coordination contract for a competitive pharmaceutical supply chain considering corporate social responsibility and pricing decisions

Abstract

Corporate social responsibility (CSR) and pricing decisions are proposed for a competitive two-level pharmaceutical supply chain (PSC) comprising two pharma-manufacturers and one pharma-retailer. In the investigated PSC, the pharma-manufacturers competitively invest in the CSR effort to produce a new medicine and sell two substitutable products to the market through the pharma-retailer, deciding on selling prices of manufacturers’ products. The PSC under consideration is modeled in three decision-making structures, i.e., decentralized, centralized, and coordinated models. In the decentralized model, the pricing and CSR decisions are individually obtained using a pharma-manufacturers–Stackelberg game structure. In the centralized model as a benchmark, the best performance of the entire PSC system is achieved. Finally, to encourage all PSC members to agree on the coordination plan, a CSR cost-sharing contract is proposed. Our results reveal that under competitive environment, the proposed CSR cost-sharing contract is able to increase market demand by significantly decreasing selling prices and increasing level of the CSR efforts.