Game-theoretic analyses of strategic pricing decision problems in supply chains

Abstract

We consider strategic pricing problems in which each firm chooses between a non-cooperative (individual pricing) strategy and a cooperative (price negotiation) strategy. We first analyze a monopoly supply chain involving a supplier and a retailer, and then investigate two competing supply chains each consisting of a supplier and a retailer. We find that an appropriate power allocation between the supplier and the retailer can make the two firms benefit from negotiating the wholesale and retail prices. When the supplier negotiates the wholesale price, the retailer’s cooperative strategy can always induce supply chain coordination in the monopoly setting, whereas the two supply chains in the duopoly setting can be possibly coordinated only when the retailers determine their retail prices individually. In both the monopoly and duopoly settings, the wholesale price negotiation is a necessary part of the communications between supply chain members. When the supply chain competition intensifies, all firms are more likely to determine their prices individually rather than to negotiate their prices.