Distribution Design of Two Rival Decenteralized Supply Chains: a Two-person Nonzero Sum Game Theory Approach

Abstract

We consider competition between two decentralized supply chains network under demand uncertainty. Each chain consists of one risk-averse manufacturer and a group of risk-averse retailers. These two chains present substitutable products to the geographical dispensed markets. The markets’ demands are contingent upon prices, service levels, and advertising efforts of two supply chains. We formulate the distribution design problem of two rival chains as a two-person nonzero sum game. Since strategic decisions of distribution designs often have priority over tactical ones, we first calculate the equilibrium of tactical decisions for each pair of distribution design scenarios. Then, according to the presented methodology, we find Nash equilibrium solutions of distribution network scenarios for two rival chains. Eventually, the research has concluded with a numerical example in order to illustrate the real applications of the methodology.