Bi-level pricing and inventory strategies for perishable products in a competitive supply chain

Abstract

This paper aims to develop a new bi-level game model for joint pricing and inventory decisions in a competitive supply chain consisting of a dominant manufacturer, who produces single perishable product from deteriorating raw materials, and two follower retailers who face nonlinear price-dependent demand and operate under Cournot assumptions. Three levels of warehousing including raw material warehouse, final product warehouse, and retail warehouses with exponential deterioration rates are considered to explore the joint impact of deterioration rate and price elasticity on the equilibrium inventory decisions. A Stackelberg–Nash–Cournot model is developed to seek the equilibrium prices, quantities, and replenishment cycles and is solved through an exact methodology. A numerical example is presented to validate the proposed model and comprehensive sensitivity analyses are carried out to measure the impact of the model’s key parameters including the deterioration rate in the producer’s and the retailers’ warehouses, the retail and competitor price elasticity, and the market scale on the equilibrium.