Evolutionary behaviors regarding pricing and payment-convenience strategies with uncertain risk

Abstract

This study develops an analytical model based on the evolutionary game theory to analytically investigate the pricing and credit time strategies of a population of pharma-distributors towards demand promotion in the long term. This study determines the evolutionary stable strategy for the pharma-distributors’ population, and finds which marketing strategy of the pharma-distributors will ultimately be adopted by the majority of them. We investigate a supply chain (SC), including one pharma-manufacturer and a population of pharma-distributors where the pharma-distributors can either offer a credit time scheme or adopt a pricing strategy for customers’ convenience, using an evolutionary game theory approach. The uncertainty of customer default risk is incorporated into the pharma-distributors’ and pharma-manufacturer's payoffs. Both numerical and parametric sensitivity analyses are provided to give insights into the way SC managers use towards demand promotion. The results reveal that the credit time option considering the uncertain default risk is the evolutionary stable strategy for the pharma-distributors in the long term. Moreover, the findings demonstrate that under intense competition on the pricing strategy, the credit time scheme will be preferred by the majority of the population of pharma-distributors. However, under intense competition on the credit time scheme, the pricing policy will be employed by the majority of the pharma-distributors.