Abstract
Online sales channel together with traditional channel form a dual-channel supply chain. Using game theory, this paper studied the coordination of a dual-channel closed loop supply chain under stochastic demand, with the retailer as the dominator/leader and the manufacturer responsible for product recycling. After comparing the optimal profit levels of the supply chain under decentralized and centralized decision systems, it finds that the total profit of the supply chain under decentralized decision is sub-optimal due to channel conflict caused by double marginal effects. In order to realize optimization of the supply chain’s total profit, this research proposed a dual-channel closed loop supply chain mechanism based on a modified two-part pricing contact. Finally, it used a numerical simulation to test the validity of the proposed contract and illustrate contract parameters’ effects on corporate profits.
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