Abstract
This paper investigates the optimal decisions in a decentralized supply chain consisting of one manufacturer and two competing retailers who face price-sensitive and stochastic demand. The retailers are risk averse with conditional value at risk (CVaR) as their risk measure, and the manufacturer is a risk-neutral agent. We construct manufacturer-Stackelberg games with retailers, who engage in horizontal price competition. For the multiplicative demand model and expected demand as an exponential function of both prices, we show that there exists the optimal pricing-ordering joint decision uniquely. We then explore the influence of the price sensitivity, risk aversion, and retail competition on optimal decisions and channel efficiency. The results show that retail competition contributes to manufacturer and improves channel efficiency of the decentralized supply chain. When the retailers are more risk averse, the channel efficiency becomes much lower. However, the level of retailers’ risk aversion has no significant impact on the manufacturer’s optimal wholesale price and retailer’s optimal selling price.
Highlights
This paper characterizes a two-stage supply chain consisting of one manufacturer and two competing retailers in a single-period setting with price-sensitive random demand
We show that the existence and uniqueness of optimal decisions under reasonable regularity condition known as increasing failure rate (IFR); (2) we prove that the equilibrium retail price and safety stock decrease with the price sensitivity and retail competition, whereas safety stock increases with the degree of risk aversion; (3) we compare, through numerical studies, the influence of retail competition and risk aversion on the optimal decisions and channel efficiency
This paper investigates the equilibrium decisions of a decentralized supply chain with two risk-averse retailers facing price-sensitive random demand
Summary
This paper characterizes a two-stage supply chain consisting of one manufacturer and two competing retailers in a single-period setting with price-sensitive random demand. Our objective is to obtain retailer’s optimal pricing-ordering joint decision under the revenue-sharing (RS) contract offered by the manufacturer Another objective is to investigate how the price sensitivity, the level of retail competition, and risk aversion affect the decentralized supply chain equilibrium and its efficiency, defined as the ratio of the aggregate profit of manufacturer and retailers in the decentralized and centralized chains. Adida and Ratisoontorn [7] investigate how competition among retailers influences the supply chain decisions and profits under different consignment arrangements, namely, a consignment price contract and a consignment contract with revenue sharing In their model, the random demand takes on a multiplicative form, and the expected demand is an exponential function of both retail prices. The detailed proofs for all the lemmas and propositions are provided in the appendix
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