Mutual Incentive Mechanism for a Supply Chain Channel of Seasonal Products under Double Price Regulation

Abstract

In this paper, we consider the decision-making and coordination mechanism of a seasonal product supply chain channel with a low season and a high season, where the price of the final product is strictly regulated, and the raw material is subject to price cap regulation in the high season. The optimal decision-making and profit under decentralized and centralized cases are derived for the low season and the high season. Our research indicates that, under the double price regulation, the manufacturer’s raw material order usually will not be completely fulfilled in the high season and the ordering quantity in the channel is usually small in the low season. Based on the results, we propose a mutual incentive mechanism, in order to encourage the supplier to supply more raw material during the high season and the manufacturer to order more raw material during the low season. Both the theoretical results and the numerical example show that the mutual incentive mechanism can effectively coordinate seasonal product supply chain channel under double price regulation. Moreover, the negotiation skills of the supplier and the manufacturer are also considered under the mutual incentive mechanism, so that the spillover profit can be allocated on a win-win basis for both sides.