Negotiation-sequence, pricing, and ordering decisions in a three-echelon supply chain: A coopetitive-game analysis

Abstract

We investigate a three-echelon supply chain in which a distributor at the middle echelon negotiates two wholesale price contracts with his upstream manufacturer and downstream retailer. In the first stage, the distributor decides on whether to first negotiate with the manufacturer or with the retailer; in the second (combined, noncooperative-cooperative, game) stage, the two negotiations are conducted sequentially. We find that the supply chain can be coordinated if the distributor first negotiates with the retailer. The distributor should choose the negotiation sequence for supply chain coordination, if he has a sufficiently large (small) relative bargaining power in the negotiation with the manufacturer (the retailer). We also extend our analysis to the cases in which the distributor and the manufacturer negotiate a buyback or two-part tariff contract, and draw similar outcomes when the distributor first negotiates with the retailer. In addition, under the two-part tariff contract, the distributor prefers to first negotiate with the retailer if the manufacturer has a sufficiently high disagreement payoff whereas, under the buyback contract, the distributor always prefers to first negotiate with the firm with a stronger bargaining power. Moreover, the two-part tariff (buyback) contract cannot (can) always coordinate the supply chain.