Analysis of Double Marginalization Effect on the Wholesale Price Contract Coordination

Abstract

Due to double marginalization effect, the wholesale price contract has been proved that it cannot coordinate a decentralized supply chain (DSC) based on the framework of Stackelberg game, in which the upstream firm acts as a leader and the downstream firm acts as a follower. Nevertheless, it has shown that the partnership between the enterprises tends to be equality. Motivated by this factor, this paper studies the coordination of wholesale price contract under the perspective of equality between enterprises. First, an innovative wholesale price contract is constructed and to prove that the constructed contract can flexibly coordinate the DSC. Second, the adaptability of the constructed contract is analyzed and compared with the revenue sharing contract, which is designed under the framework of Stackelberg game. Third, numerical analysis is calculated to verify the effectiveness and operation of the model.