Impact of pricing structure on supply chain coordination with cooperative advertising

Abstract

This paper develops a game-theoretic model in a two-echelon supply chain composed of one manufacturer and two retailers to study the effect of pricing structure and cooperative-advertising decisions on the supply chain coordination performance. In the proposed model, different pricing structures are analyzed and then, two types of pricing structure in supply chain coordination mechanisms are presented, in addition to considering four possible scenarios for pricing structure. For the first two scenarios, retailers determine the retail prices, while in the other two ones, the sales price is set by the manufacturer. Therefore, the retailers are obliged to comply with this rule. The manufacturer-Stackelberg and the cooperative games are formulated for each scenario by considering key assumptions associated with advertising expenditures to maintain the potential demand size. This paper also presents some analytical results and determines the equilibrium of the models for each scenario. Finally, a numerical analysis is conducted to illustrate the impact of pricing structure on the optimal decision variables and the profit of the supply chain members.