A survey of Stackelberg differential game models in supply and marketing channels

Abstract

Stackelberg differential game models have been used to study sequential decision making in noncooperative games in diverse fields. In this paper, we survey recent applications of Stackelberg differential game models to the supply chain management and marketing channels literatures. A common feature of these applications is the specification of the game structure: a decentralized channel composed of a manufacturer and independent retailers, and a sequential decision procedure with demand and supply dynamics and coordination issues. In supply chain management, Stackelberg differential games have been used to investigate inventory issues, wholesale and retail pricing strategies, and outsourcing in dynamic environments. The underlying demand typically has growth dynamics or seasonal variation. In marketing, Stackelberg differential games have been used to model cooperative advertising programs, store brand and national brand advertising strategies, shelf space allocation, and pricing and advertising decisions. The demand dynamics are usually extensions of the classical advertising capital models or sales-advertising response models. We begin by explaining the Stackelberg differential game solution methodology and then provide a description of the models and results reported in the literature.